UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




FOR
THE QUARTERLY PERIOD ENDED OCTOBER 31, 2009




or




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




Commission
File Number: 1-16371





IDT
CORPORATION


(Exact
Name of Registrant as Specified in its Charter)










Delaware
            22-3415036(State or other jurisdiction
      of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      Number)520
      Broad Street, Newark, New Jersey
            07102(Address
      of principal executive offices)
            (Zip
      Code)




(973)
438-1000


(Registrant’s
telephone number, including area code)







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   ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈  No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
             ̈
            Accelerated filer
             ̈Non-accelerated
      filer
             ̈  (Do
      not check if a smaller reporting company)
            Smaller reporting company
            x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):    Yes   ̈    No  x




As of
December 11, 2009, the registrant had the following shares
outstanding:





Common Stock, $.01 par value:
            3,811,254
      shares outstanding (excluding 5,430,241 treasury
shares)Class A common stock, $.01 par value:
            3,272,326
      shares outstandingClass B common stock, $.01 par value:
            15,607,425
      shares outstanding (excluding 7,585,848 treasury
  shares)


Table of Contents





IDT
CORPORATION




TABLE OF CONTENTS




PART I.  FINANCIAL INFORMATION
              3Item 1.
              Financial Statements (Unaudited)
              3Condensed Consolidated Balance Sheets
              3Condensed Consolidated Statements of
      Operations
              4Condensed Consolidated Statements of Cash Flows
              5Notes to Condensed Consolidated Financial Statements
              6Item 2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              21Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risks
              38Item 4T.
              Controls and Procedures
              39PART II.  OTHER INFORMATION
              40Item 1.
              Legal Proceedings
              40Item 1A.
              Risk Factors
              40Item 2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              40Item 3.
              Defaults Upon Senior Securities
              40Item 4.
              Submission of Matters to a Vote of Security Holders
              40Item 5.
              Other Information
              40Item 6.
              Exhibits
              41SIGNATURES
              42






2
 Table of Contents






PART
I. FINANCIAL INFORMATION




Item 1.               Financial
Statements (Unaudited)




IDT
CORPORATION









CONDENSED CONSOLIDATED BALANCE SHEETS


October
      31,
                2009
              
              
              July 31,
                2009(Unaudited)
              
              
              (Note
      1)(in
      thousands)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              166,189
              
              
              $
              117,902Restricted
      cash and cash equivalents (Note 13)
              
              
              15,214
              
              
              
              64,992Marketable
      securities (Note 13)
              
              
              5,594
              
              
              
              5,702Trade
      accounts receivable, net of allowance for doubtful accounts of $12,851 at
      October 31, 2009 and
                $15,740 at July 31, 2009
              
              
              116,312
              
              
              
              138,697Prepaid
      expenses
              
              
              18,829
              
              
              
              17,597Investments—short-term
              
              
              2,420
              
              
              
              631Other
      current assets
              
              
              18,786
              
              
              
              17,394Assets
      of discontinued operations
              
              
              —
              
              
              
              18,790Total
      current assets
              
              
              343,344
              
              
              
              381,705Property,
      plant and equipment, net
              
              
              116,324
              
              
              
              129,066Goodwill
              
              
              17,423
              
              
              
              17,275Licenses
      and other intangibles, net
              
              
              4,900
              
              
              
              5,350Investments—long-term
              
              
              9,833
              
              
              
              13,099Other
      assets
              
              
              12,270
              
              
              
              13,125Total
      assets
              
              $
              504,094
              
              
              $
              559,620Liabilities
      and equityCurrent
      liabilities:Trade
      accounts payable
              
              $
              62,330
              
              
              $
              68,120Accrued
      expenses
              
              
              139,608
              
              
              
              159,032Deferred
      revenue
              
              
              71,195
              
              
              
              67,505Income
      taxes payable
              
              
              2,031
              
              
              
              2,031Capital
      lease obligations—current portion
              
              
              6,583
              
              
              
              7,058Notes
      payable—current portion
              
              
              585
              
              
              
              820Other
      current liabilities
              
              
              5,121
              
              
              
              4,852Liabilities
      of discontinued operations
              
              
              —
              
              
              
              5,496Total
      current liabilities
              
              
              287,453
              
              
              
              314,914Capital
      lease obligations—long-term portion
              
              
              3,996
              
              
              
              5,211Notes
      payable—long-term portion
              
              
              36,439
              
              
              
              43,281Other
      liabilities
              
              
              16,363
              
              
              
              16,772Total
      liabilities
              
              
              344,251
              
              
              
              380,178Commitments
      and contingenciesEquity:IDT
      Corporation stockholders’ equity:Preferred
      stock, $.01 par value; authorized shares—10,000; no shares
      issued
              
              
              —
              
              
              
              —Common
      stock, $.01 par value; authorized shares—100,000; 9,241 and 9,241 shares
      issued and 3,811 and
                4,202 shares outstanding at October 31, 2009 and July 31, 2009,
      respectively
              
              
              92
              
              
              
              92Class A
      common stock, $.01 par value; authorized shares—35,000; 3,272 shares
      issued and outstanding
                at October 31, 2009 and July 31, 2009
              
              
              33
              
              
              
              33Class
      B common stock, $.01 par value; authorized shares—200,000; 23,193 and
      22,913 shares issued and 15,607
                and 15,503 shares outstanding at October 31, 2009 and July 31, 2009,
      respectively
              
              
              232
              
              
              
              229Additional
      paid-in capital
              
              
              708,014
              
              
              
              720,804Treasury
      stock, at cost, consisting of 5,430 and 5,039 shares of common stock and
      7,586 and 7,410 shares
                of Class B common stock at October 31, 2009 and July 31, 2009,
      respectively
              
              
              (295,370
              )
              
              
              (293,901
              )Accumulated
      other comprehensive income
              
              
              1,969
              
              
              
              953Accumulated
      deficit
              
              
              (255,397
              )
              
              
              (251,916
              )Total
      IDT Corporation stockholders’ equity
              
              
              159,573
              
              
              
              176,294Noncontrolling
      interests
              
              
              270
              
              
              
              3,148Total
      equity
              
              
              159,843
              
              
              
              179,442Total
      liabilities and equity
              
              $
              504,094
              
              
              $
              559,620


See
accompanying notes to condensed consolidated financial statements.


3
 Table of Contents


IDT
CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(Unaudited)




Three
      Months Ended
                October
      31,2009
              
              
              2008(In
      thousands, except per share data)Revenues
              
              $
              327,329
              
              
              $
              403,792Costs
      and expenses:Direct
      cost of revenues (exclusive of depreciation and
    amortization)
              
              
              258,176
              
              
              
              312,933Selling,
      general and administrative (i)
              
              
              57,099
              
              
              
              85,554Depreciation
      and amortization
              
              
              9,383
              
              
              
              12,862Bad
      debt
              
              
              448
              
              
              
              1,636Research
      and development
              
              
              2,109
              
              
              
              1,644Restructuring
      and impairment charges
              
              
              (41
              )
              
              
              1,214Total
      costs and expenses
              
              
              327,174
              
              
              
              415,843Income
      (loss) from operations
              
              
              155
              
              
              
              (12,051
              )Interest
      (expense) income, net
              
              
              (1,332
              )
              
              
              358Other
      expense, net
              
              
              (1,188
              )
              
              
              (20,998
              )Loss
      from continuing operations before income taxes
              
              
              (2,365
              )
              
              
              (32,691
              )Provision
      for income taxes
              
              
              (1,152
              )
              
              
              (2,800
              )Loss
      from continuing operations
              
              
              (3,517
              )
              
              
              (35,491
              )Discontinued
      operations, net of tax:Income
      (loss) from discontinued operations
              
              
              7
              
              
              
              (1,900
              )Loss
      on sale of discontinued operations
              
              
              (147
              )
              
              
              (231
              )Total
      discontinued operations
              
              
              (140
              )
              
              
              (2,131
              )Net
      loss
              
              
              (3,657
              )
              
              
              (37,622
              )Net
      loss attributable to noncontrolling interests
              
              
              176
              
              
              
              364Net
      loss attributable to IDT Corporation
              
              $
              (3,481
              )
              
              $
              (37,258
              )Amounts
      attributable to IDT Corporation common stockholders:Loss
      from continuing operations
              
              $
              (3,441
              )
              
              $
              (35,106
              )Loss
      from discontinued operations
              
              
              (40
              )
              
              
              (2,152
              )Net
      loss
              
              $
              (3,481
              )
              
              $
              (37,258
              )Earnings
      per share attributable to IDT Corporation common
    stockholders:Basic
      and diluted:Loss
      from continuing operations
              
              $
              (0.17
              )
              
              $
              (1.44
              )Loss
      from discontinued operations
              
              
              —
              
              
              
              (0.09
              )Net
      loss
              
              $
              (0.17
              )
              
              $
              (1.53
              )Weighted-average
      number of shares used in calculation of basic and diluted earnings per
      share
              
              
              20,190
              
              
              
              24,320(i)Stock-based compensation included
      in selling, general and administrative expenses
              
              $
              1,205
              
              
              $
              1,323





See
accompanying notes to condensed consolidated financial statements.


4
 Table of Contents





IDT
CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


Three
      Months Ended
                October
      31,2009
              
              
              2008(in
      thousands)Net
      cash provided by (used in) operating activities
              
              $
              2,227
              
              
              $
              (52,397
              )Investing
      activitiesCapital
      expenditures
              
              
              (2,824
              )
              
              
              (2,508
              )Repayment
      of notes receivable, net
              
              
              50
              
              
              
              15Capital
      contributions to AMSO, LLC
              
              
              (303
              )
              
              
              —Proceeds
      from sale and redemption of investments
              
              
              507
              
              
              
              5,000Restricted
      cash and cash equivalents
              
              
              49,778
              
              
              
              (17,977
              )Proceeds
      from sales of buildings
              
              
              5,150
              
              
              
              —Proceeds
      from sales and maturities of marketable securities
              
              
              —
              
              
              
              52,312Purchases
      of marketable securities
              
              
              —
              
              
              
              (19,890
              )Net
      cash provided by investing activities
              
              
              52,358
              
              
              
              16,952Financing
      activitiesCash
      of subsidiaries deconsolidated as a result of the CTM Spin-Off
              
              
              (9,775
              )
              
              
              —Distributions
      to holders of noncontrolling interests in subsidiaries
              
              
              (649
              )
              
              
              (299
              )Proceeds
      from sale of stock of subsidiary
              
              
              —
              
              
              
              987Repayments
      of capital lease obligations
              
              
              (1,689
              )
              
              
              (2,180
              )Repayments
      of borrowings
              
              
              (183
              )
              
              
              (251
              )Repurchases
      of common stock and Class B common stock
              
              
              (1,468
              )
              
              
              (2,894
              )Net
      cash used in financing activities
              
              
              (13,764
              )
              
              
              (4,637
              )Discontinued
      operationsNet
      cash provided by (used in) operating activities
              
              
              930
              
              
              
              (632
              )Net
      cash (used in) provided by investing activities
              
              
              (44
              )
              
              
              3,224Net
      cash used in financing activities
              
              
              (471
              )
              
              
              (675
              )Net
      cash provided by discontinued operations
              
              
              415
              
              
              
              1,917Effect
      of exchange rate changes on cash and cash equivalents
              
              
              571
              
              
              
              (4,320
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              41,807
              
              
              
              (42,485
              )Cash
      and cash equivalents (including discontinued operations) at beginning of
      period
              
              
              124,382
              
              
              
              164,886Cash
      and cash equivalents (including discontinued operations) at end of
      period
              
              
              166,189
              
              
              
              122,401Less
      cash and cash equivalents of discontinued operations at end of period
              
              
              —
              
              
              
              (6,084
              )Cash
      and cash equivalents (excluding discontinued operations) at end of
      period
              
              $
              166,189
              
              
              $
              116,317Supplemental
      schedule of non-cash financing and investing activitiesMortgage
      note payable settled in connection with the sale of building
              
              $
              (6,137
              )
              
              $
              —Net
      assets excluding cash and cash equivalents of subsidiaries deconsolidated
      as a result of the CTM Spin-Off
              
              $
              (6,014
              )
              
              $
              —




See
accompanying notes to condensed consolidated financial statements.


5
 Table of Contents


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 its subsidiaries (the “Company” or “IDT”) have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) 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 U.S. GAAP 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 months ended
October 31, 2009 are not necessarily indicative of the results that may be
expected for the fiscal year ending July 31, 2010. The balance sheet at
July 31, 2009 has been derived from the Company’s audited financial statements
at that date but does not include all of the information and footnotes required
by U.S. GAAP 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 for the fiscal year ended
July 31, 2009, as filed with the U.S. Securities and Exchange Commission
(the “SEC”).




The
Company’s fiscal year ends on July 31 of each calendar year. Each reference
below to a fiscal year refers to the fiscal year ending in the calendar year
indicated (e.g., fiscal 2010 refers to the fiscal year ending July 31,
2010).




On August
1, 2009, the Company adopted the accounting standard relating to noncontrolling
interests in consolidated financial statements (see Note 14). In addition,
certain prior year amounts have been reclassified to conform to the current
year’s presentation. As described in Note 2, certain subsidiaries have been
reclassified to discontinued operations for all periods presented, and a
subsidiary has been reclassified from discontinued operations to continuing
operations for all periods presented. As described in Note 11, business
segment results for the three months ended October 31, 2008 have been
reclassified and restated to conform to the current year’s
presentation.




The
Company’s management evaluated events or transactions that occurred after
October 31, 2009 through December 15, 2009 for potential recognition or
disclosure in the financial statements.




The
Company records Universal Service Fund (“USF”) charges that are billed to
customers on a gross basis in its results of operations, and records other taxes
and surcharges on a net basis. USF charges in the amount of $0.6 million and
$0.8 million in the three months ended October 31, 2009 and 2008, respectively,
were recorded on a gross basis.




On
September 30, 2008, the Company received notice from the New York Stock
Exchange (“NYSE”) that it was no longer in compliance with the NYSE’s $100
million average market capitalization threshold over a 30-day trading period
requirement required for continued listing. The Company submitted a plan to the
NYSE to regain compliance with the market capitalization standard, and that plan
was accepted. The NYSE monitors compliance with the plan and may commence
delisting procedures if the Company fails to meet the milestones set forth in
its plan. The Company has until March 2010 to regain compliance with the $100
million market capitalization standard. As of December 11, 2009, the Company had
a 30-day average market capitalization of $83.9 million.




The
Company incurred a loss from continuing operations in each of the five years in
the period ended July 31, 2009 and in the three months ended October 31, 2009.
The Company incurred a net loss in the three months ended October 31, 2009, and
in fiscal 2009, fiscal 2008, fiscal 2006 and fiscal 2005, and would have
incurred a net loss in fiscal 2007 except for a gain on the sale of IDT
Entertainment. The Company also had negative cash flow from operating activities
in each of the three years in the period ended July 31, 2009. The Company had an
accumulated deficit at October 31, 2009 of $255.4 million. Historically, the
Company satisfied its cash requirements primarily through a combination of its
existing cash and cash equivalents, proceeds from the sale of businesses,
proceeds from the sales and maturities of marketable securities and investments,
arbitration awards and litigation settlements, and borrowings from third
parties. The Company currently expects its operations in the next twelve months
and the balance of cash, cash equivalents, marketable securities and pooled
investment vehicles including hedge funds that it held as of October 31, 2009
will be sufficient to meet its currently anticipated working capital and capital
expenditure requirements, and to fund any potential operating cash flow deficits
within any of its segments for at least the next twelve months. The foregoing is
based on a number of assumptions, including that the Company will collect its
receivables, effectively manage its working capital requirements, prevail in
legal actions and other claims initiated against it, and maintain its revenue
levels and liquidity. Predicting these matters is particularly difficult in the
current worldwide economic situation and overall decline in consumer demand.
Failure to generate sufficient revenue and operating income could have a
material adverse effect on the Company’s results of operations, financial
condition and cash flows. The recoverability of assets is highly dependent on
the ability of management to execute its business plan.




6
 Table of Contents





Note
2—Discontinued Operations




CTM
Media Holdings, Inc.




On
September 14, 2009, the Company completed a pro rata distribution of the
common stock of CTM Media Holdings, Inc. (“CTM Holdings”) to the Company’s
stockholders of record as of the close of business on August 3, 2009 (the
“CTM Spin-Off”). CTM Holdings’ businesses include: CTM Media Group, which is a
distributor of print and online advertising and information in targeted North
American tourist markets; IDW Publishing, which is a comic and book publisher
with a diverse catalog of licensed and independent titles; and WMET 1160AM,
which is a paid programming radio station in the Washington, D.C. metropolitan
area. CTM Holdings and subsidiaries met the criteria to be reported as
discontinued operations and accordingly, their assets, liabilities, results of
operations and cash flows are classified as discontinued operations for all
periods presented. As of September 14, 2009, each of the Company’s
stockholders of record as of the close of business on the record date received:
(i) one share of CTM Holdings Class A common stock for every three
shares of the Company’s common stock; (ii) one share of CTM Holdings Class
B common stock for every three shares of the Company’s Class B common stock;
(iii) one share of CTM Holdings Class C common stock for every three shares
of the Company’s Class A common stock; and (iv) cash in lieu of a
fractional share of all classes of CTM Holdings’ common stock.




In
September 2009, prior to the CTM Spin-Off, the Company funded CTM Holdings with
an additional $2.0 million in cash.




Hillview
Avenue Realty, LLC




On
July 31, 2009, Hillview Avenue Realty, LLC (“Hillview”), a majority owned
subsidiary of the Company, closed on the sale of its property located at 3373
and 3375 Hillview Avenue in Palo Alto, California. The Company has a 69.27%
ownership interest in Hillview. The property consisted of two interconnected
office buildings located on 6.68 acres. The sales price was $62.7 million. The
Company’s proceeds from the sale, after deduction of the mortgage debt secured
by the property that was assumed by the buyer or repaid in connection with the
sale, and transaction expenses were $4.4 million, which was received in August
2009. In November 2009, the Company paid $1.5 million of the proceeds to the
other owners of Hillview. This sale met the criteria to be reported as
discontinued operations and accordingly, the assets, liabilities, results of
operations and cash flows of the property are classified as discontinued
operations for all periods presented.




Union
Telecard Dominicana, S.A and Ethnic Grocery Brands LLC





On
June 24, 2009, the Company acquired the 49% interest in Union Telecard
Alliance, LLC (“UTA”) that it did not own in exchange for (a) $4.9 million
in cash, (b) a promissory note in the principal amount of $1.2 million
payable in thirty-six equal monthly installments, (c) the forgiveness of a
note receivable in the amount of $1.2 million including principal and accrued
interest, (d) the assignment of all of the interests in Union Telecard
Dominicana, S.A. (“UTA DR”) held by UTA, (e) the assignment of an 80%
ownership interest in Ethnic Grocery Brands LLC (“EGB”) held by UTA, and
(f) other consideration of $0.4 million. UTA retained a 10% ownership
interest in EGB. In addition, the seller may receive up to an additional $1.7
million for post-closing contingencies. The aggregate purchase price was $9.7
million, which included the aggregate estimated fair value of the interests in
UTA DR and EGB of $2.0 million. UTA is the distributor of the Company’s prepaid
calling cards in the United States. UTA DR and EGB met the criteria to be
reported as discontinued operations and accordingly, the assets, liabilities,
results of operations and cash flows of UTA DR and EGB are classified as
discontinued operations for all periods presented.




IDT
Carmel




On
January 30, 2009, IDT Carmel, Inc., IDT Carmel Portfolio Management LLC,
and FFPM Carmel Holdings I LLC (all of which are subsidiaries of the Company)
(collectively “IDT Carmel”) and Sherman Originator III LLC consummated the sale,
pursuant to a Purchase and Sale Contract, of substantially all of IDT Carmel
Portfolio Management LLC’s debt portfolios with an aggregate face value of
$951.6 million for cash of $18.0 million. The Company exited the debt collection
business in April 2009. IDT Carmel met the criteria to be reported as a
discontinued operation and accordingly, IDT Carmel’s assets, liabilities,
results of operations and cash flows are classified as discontinued operations
for all periods presented. Loss on sale of discontinued operations in the three
months ended October 31, 2009 of $0.1 million included costs which arose from
and were directly related to the operations of IDT Carmel prior to its
disposal.




IDT
Entertainment




In the
first quarter of fiscal 2007, the Company completed the sale of IDT
Entertainment to Liberty Media Corporation. Loss on sale of discontinued
operations in the three months ended October 31, 2008 of $0.2 million included
compensation which arose from and was directly related to the operations of IDT
Entertainment prior to its disposal.




7
 Table of Contents





Significant
Accounting Policies of Discontinued Operations




IDT
Carmel purchased debt portfolios that experienced deterioration of credit
quality at a significantly lower price than their contractual amount. Upon
acquisition of debt portfolios, static pools of accounts were established, which
were aggregated based on certain common risk criteria. Each static pool was
recorded at cost, which included external acquisition costs, and was accounted
for as a single unit for the recognition of income, principal payments and loss
provision. Once pools were established, they were not changed unless replaced,
returned or sold.




The
Company, through IDT Carmel, accounted for its purchased debt portfolios in
accordance with the accounting standard relating to certain loans or debt
securities acquired in a transfer,which provided for
recognition of the excess of the undiscounted collections expected at
acquisition over the cost of the purchased debt as income. Income was recognized
on a level-yield basis over the expected life of the debt (the “effective yield
method”) based on the expected internal rate of return (“IRR”). Subsequent
increases in cash flows expected to be collected were generally recognized
prospectively through an increase to the IRR over the debt’s remaining life.
Decreases in cash flows expected to be collected were recognized as impairment.
Recognition of income under the effective yield method was dependent on having a
reasonable expectation about the timing and amount of cash flows expected to be
collected. IDT Carmel used the cost recovery method to account for a portfolio
if it could not reasonably predict the timing and amount of collections from the
portfolio. Under the cost recovery method, no income was recognized until IDT
Carmel fully collected the cost of the portfolio.




Summary
Financial Data of Discontinued Operations




Revenues,
(loss) income before income taxes and net loss of CTM Holdings and subsidiaries,
Hillview, UTA DR, EGB and IDT Carmel, which are included in discontinued
operations, were as follows:




Three
      Months Ended
                October
      31,2009
              
              
              2008(in
      thousands)Revenues:CTM
      Holdings and subsidiaries
              
              $
              4,045
              
              
              $
              9,057Hillview
              
              
              —
              
              
              
              1,655UTA
      DR
              
              
              —
              
              
              
              11,171EGB
              
              
              —
              
              
              
              6,827IDT
      Carmel
              
              
              —
              
              
              
              8,852Total
              
              $
              4,045
              
              
              $
              37,562
 Income
      (loss) income before income taxes:CTM
      Holdings and subsidiaries
              
              $
              217
              
              
              $
              4Hillview
              
              
              —
              
              
              
              (235
              )UTA
      DR
              
              
              —
              
              
              
              (78
              )EGB
              
              
              —
              
              
              
              (713
              )IDT
      Carmel
              
              
              —
              
              
              
              (710
              )Total
              
              $
              217
              
              
              $
              (1,732
              )
 Net
      income (loss):CTM
      Holdings and subsidiaries
              
              $
              7
              
              
              $
              (164
              )Hillview
              
              
              —
              
              
              
              (235
              )UTA
      DR
              
              
              —
              
              
              
              (78
              )EGB
              
              
              —
              
              
              
              (713
              )IDT
      Carmel
              
              
              —
              
              
              
              (710
              )Total
              
              $
              7
              
              
              $
              (1,900
              )





8
 Table of Contents
  (in
      thousands)AssetsCash and cash
      equivalents
                    
                    $
                    6,480Trade accounts
      receivable, net
                    
                    
                    3,908Prepaid
      expenses
                    
                    
                    980Investments-short-term
                    
                    
                    1,024Other current
      assets
                    
                    
                    1,408Property, plant and
      equipment, net
                    
                    
                    4,243Licenses and other
      intangibles, net
                    
                    
                    588Other
      assets
                    
                    
                    159Assets
      of discontinued operations
                    
                    $
                    18,790LiabilitiesTrade accounts
      payable
                    
                    $
                    1,024Accrued
      expenses
                    
                    
                    1,427Deferred
      revenues
                    
                    
                    1,731Capital lease
      obligations-current portion
                    
                    
                    222Other current
      liabilities
                    
                    
                    563Capital lease
      obligations-long-term portion
                    
                    
                    526Other
      liabilities
                    
                    
                    3Liabilities of
      discontinued operations
                    
                    $
                    5,496


European
Prepaid Payment Services Business




On
July 9, 2009, the Company entered into an agreement for the sale of the
capital stock of IDT Financial Services Holding Limited (“IDT Financial
Services”), the Company’s European prepaid payment services business. IDT
Financial Services provides prepaid MasterCard®
products in the United Kingdom under the “Prime Card” brand. In the fourth
quarter of fiscal 2009, IDT Financial Services met the criteria to be classified
as held for sale and reported as discontinued operations. On October 31, 2009,
as a result of certain events that indicated that the buyer was unlikely to
complete the transaction, the Company concluded that the sale was no longer
probable. Therefore, IDT Financial Services no longer met the criteria to be
classified as held for sale and reported as discontinued operations.
Accordingly, the assets, liabilities, results of operations and cash flows of
IDT Financial Services are classified as continuing operations for all periods
presented.




Note
3—Marketable Securities




The
Company classifies all of its marketable securities as “available-for-sale”
securities. Marketable securities are stated at fair value, with unrealized
gains and losses in such securities reflected, net of tax, in “Accumulated other
comprehensive income” in the accompanying consolidated balance sheets.The Company’s marketable
securities at October 31, 2009 and July 31, 2009 included auction rate
securities with a cost of $14.3 million and an estimated fair value of $0.5
million and $0.6 million, respectively. In fiscal 2009 and fiscal 2008, the
Company recorded an aggregate $13.9 million loss after determining that there
were other than temporary declines in the value of these auction rate
securities.




The
following is a summary of marketable securities:




Amortized
      Cost
            
            
            Gross
      Unrealized Gains
            
            
            Gross
      Unrealized Losses
            
            
            Fair
      Value(in
      thousands)October 31, 2009:Available-for-sale
      securities:Corporate
      and other debt securities
            
            $
            5,508
            
            
            $
            119
            
            
            $
            (47
            )
            
            $
            5,580Equity
      securities
            
            
            15
            
            
            
            —
            
            
            
            (1
            )
            
            
            14Total
            
            $
            5,523
            
            
            $
            119
            
            
            $
            (48
            )
            
            $
            5,594


July 31, 2009:Available-for-sale
      securities:Corporate
      and other debt securities
            
            $
            5,508
            
            
            $
            232
            
            
            $
            (52
            )
            
            $
            5,688Equity
      securities
            
            
            15
            
            
            
            —
            
            
            
            (1
            )
            
            
            14Total
            
            $
            5,523
            
            
            $
            232
            
            
            $
            (53
            )
            
            $
            5,702




There
were no sales and maturities of available-for-sale securities in the three
months ended October 31, 2009. Proceeds from sales and maturities of
available-for-sale securities and the gross realized losses that have been
included in earnings as a result of those sales in the three months ended
October 31, 2008 were $52.3 million and $(8.1) million, respectively. The
Company uses the specific identification method in computing the gross realized
gains and gross realized losses on the sales of marketable
securities.




9
 Table of Contents




The
contractual maturities of the Company’s available-for-sale debt securities at
October 31, 2009 are as follows:


Fair
      Value(in
      thousands)Within one year
            
            $
            5,577After one year through five years
            
            
            3After five years through ten years
            
            
            —Total
            
            $
            5,580




The
following available-for-sale securities are in an unrealized loss position for
which other-than-temporary impairments have not been recognized:




Unrealized
      Losses
            
            
            Fair
      Value(in
      thousands)October 31, 2009:Corporate
      and other debt securities
            
            $
            47
            
            
            $
            5,108Equity
      securities
            
            
            1
            
            
            
            14Total
            
            $
            48
            
            
            $
            5,122





July 31, 2009:Corporate
      and other debt securities
            
            $
            52
            
            
            $
            5,103Equity
      securities
            
            
            1
            
            
            
            14Total
            
            $
            53
            
            
            $
            5,117





At
October 31, 2009 and July 31, 2009, there were no available-for-sale
securities in a continuous unrealized loss position for 12 months or
longer.




Note
4—Fair Value Measurements




The
following table presents the balances of assets and liabilities measured at fair
value on a recurring basis:




Level 1 (1)
            
            
            Level 2 (2)
            
            
            Level 3 (3)
            
            
            Total(in
      thousands)October 31, 2009:Assets:Corporate
      and other debt securities
            
            $
            3
            
            
            $
            —
            
            
            $
            5,577
            
            
            $
            5,580Equity
      securities
            
            
            14
            
            
            
            —
            
            
            
            —
            
            
            
            14Total
      marketable securities
            
            $
            17
            
            
            $
            —
            
            
            $
            5,577
            
            
            $
            5,594Liabilities:Derivative
      contracts
            
            $
            293
            
            
            $
            —
            
            
            $
            888
            
            
            $
            1,181





July 31, 2009:Assets:Corporate
      and other debt securities
            
            $
            3
            
            
            $
            —
            
            
            $
            5,685
            
            
            $
            5,688Equity
      securities
            
            
            14
            
            
            
            —
            
            
            
            —
            
            
            
            14Total
      marketable securities
            
            $
            17
            
            
            $
            —
            
            
            $
            5,685
            
            
            $
            5,702Liabilities:Derivative
      contracts
            
            $
            493
            
            
            $
            —
            
            
            $
            686
            
            
            $
            1,179


_________________


(1) –
quoted prices in active markets for identical assets or liabilities


(2) –
observable inputs other than quoted prices in active markets for identical
assets and liabilities


(3) – no
observable pricing inputs in the market





The
Company’s marketable securities at October 31, 2009 and July 31, 2009 included
auction rate securities with a cost of $14.3 million. The underlying asset for
these securities is preferred stock of the Federal National Mortgage Association
or the Federal Home Loan Mortgage Corporation. The fair values of the auction
rate securities, which cannot be corroborated by the market, were estimated
based on the value of the underlying assets and the Company’s assumptions, and
are therefore classified as Level 3.




The
Company’s investments in pooled investment vehicles including hedge funds, which
are included in “Investments—short-term” and “Investments—long-term” in the
accompanying condensed consolidated balance sheets, are accounted for using the
equity method unless the Company’s interest is so minor that it has virtually no
influence over operating and financial policies pursuant to





10
 Table of Contents
 
 the
accounting standards relating to investments in limited partnerships and in
limited liability companies. The Company’s investments in pooled investment
vehicles including hedge funds are therefore excluded from the fair value
measurements table above.




The
Company’s derivative contracts are valued using quoted market prices or
significant unobservable inputs. These contracts consist of (1) natural gas
and electricity forward contracts to fix the price that IDT Energy will pay for
specified amounts of natural gas and electricity on specified dates, which are
classified as Level 1, and (2) an embedded derivative in a structured note that
must be bifurcated, which was classified as Level 3. The fair values of the
structured note, which was included in marketable securities and was classified
as Level 3, and the embedded derivative were estimated primarily based on
pricing information from the counterparty.




The
following table summarizes the change in the balance of the Company’s assets and
liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3):




Three
      Months Ended
              October 31,
      2009
            
            
            Three
      Months Ended
              October 31,
      2008Assets
            
            
            Liabilities
            
            
            Assets
            
            
            Liabilities(in
      thousands)Balance, beginning of period
            
            $
            5,685
            
            
            $
            (686
            )
            
            $
            53,265
            
            
            $
            (155
            )Total gains (losses) (realized or unrealized):Included
      in earnings in “Other expense, net”
            
            
            —
            
            
            
            (202
            )
            
            
            (8,235
            )
            
            
            —Included
      in other comprehensive loss
            
            
            (108
            )
            
            
            —
            
            
            
            2,455
            
            
            
            —Purchases, sales, issuances and settlements
            
            
            —
            
            
            
            —
            
            
            
            (33,080
            )
            
            
            —Transfers in (out) of Level 3
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Balance, end of period
            
            $
            5,577
            
            
            $
            (888
            )
            
            $
            14,405
            
            
            $
            (155
            )The amount of total gains or losses for the period included in earnings in
      “Other expense, net” attributable to the change in unrealized gains or
      losses relating to assets or liabilities still held at the end of the
      period
            
            $
            —
            
            
            $
            (202
            )
            
            $
            (6,314
            )
            
            $
            —





Fair
Value of Other Financial Instruments




The
estimated fair value of the Company’s other financial instruments has been
determined using available market information or other appropriate valuation
methodologies. However, considerable judgment is required in interpreting this
data to develop estimates of fair value. Consequently, the estimates are not
necessarily indicative of the amounts that could be realized or would be paid in
a current market exchange. At October 31, 2009 and July 31, 2009, the
carrying value of the Company’s trade accounts receivable, prepaid expenses,
investments-short-term, other current assets, trade accounts payable, accrued
expenses, deferred revenue, income taxes payable, capital lease
obligations—current portion, notes payable—current portion and other current
liabilities approximate fair value because of the short period of time to
maturity. At October 31, 2009 and July 31, 2009, the carrying value of the
long term portion of the Company’s notes payable and capital lease obligations
approximate fair value as their contractual interest rates approximate market
yields for similar debt instruments.




Note
5—Derivative Instruments




The
primary risks managed by the Company using derivative instruments are commodity
price risk and interest rate risk. Natural gas and electricity forward contracts
are entered into to fix the price that IDT Energy will pay for specified amounts
of natural gas and electricity on specified dates. An interest rate swap was
used until June 2009 to achieve a fixed interest rate on a portion of the
Company’s variable-rate debt. In addition, one of the Company’s marketable
securities was a structured note that contained an embedded derivative
feature.




IDT
Energy has entered into forward contracts as hedges against unfavorable
fluctuations in natural gas and electricity prices. These contracts do not
qualify for hedge accounting treatment and therefore, the changes in fair value
are recorded in earnings. As of October 31, 2009, IDT Energy had the following
outstanding forward contracts:




Commodity
            
            Settlement
      Date
            
            VolumeNatural gas
            
            January
      2010
            
            77,500
      mmbtuNatural gas
            
            February
      2010
            
            70,000
      mmbtuNatural gas
            
            March
      2010
            
            77,500
      mmbtu





The
structured note was included in marketable securities as of October 31, 2009 and
had a par value of $5.0 million. The structured note matured in November
2009.




11
 Table of Contents





The fair
value of outstanding derivative instruments recorded as liabilities in the
accompanying condensed consolidated balance sheets were as follows:




Liability
      Derivatives
            
            Balance
      Sheet Location
            
            October
      31, 2009
            
            
            July
      31, 2009(in
      thousands)Derivatives not designated or not qualifying as
              hedging instruments:Energy contracts
            
            Other
      current liabilities
            
            $
            293
            
            
            $
            493Structured note embedded derivative
            
            Other
      current liabilities
            
            
            888
            
            
            
            686Total
      liability derivatives
            
            
            
            $
            1,181
            
            
            $
            1,179





The
effects of derivative instruments on the condensed consolidated statements of
operations were as follows:




Amount
      of Gain (Loss) Recognized on DerivativesThree
      Months Ended
              October
      31,Derivatives not designated or
      not qualifying as  hedging instruments
            
            Location
      of Gain (Loss) Recognized on Derivatives
            
            2009
            
            
            2008(in
      thousands)Energy contracts
            
            Direct cost of revenues
            
            $
            200
            
            
            $
            (489
            )Structured note embedded derivative
            
            Other expense, net
            
            
            (202
            )
            
            
            —Total
            
            
            
            $
            (2
            )
            
            $
            (489
            )





The
Company is exposed to credit loss in the event of nonperformance by
counterparties on the above derivative instruments. Although nonperformance is
possible, the Company does not anticipate nonperformance by any of these parties
primarily because the contracts are with creditworthy
counterparties.




Note
6—Investment in American Shale Oil, LLC




In April
2008, American Shale Oil Corporation (“AMSO”), a wholly-owned subsidiary of the
Company, acquired a 75% equity interest in American Shale Oil, L.L.C. (“AMSO,
LLC”), in exchange for cash of $2.5 million and certain commitments for future
funding of AMSO, LLC’s operations. In a separate transaction in April 2008, the
Company acquired an additional 14.9437% equity interest in AMSO, LLC in exchange
for cash of $3.0 million.




AMSO, LLC
is one of three holders of leases granted by the U.S. Bureau of Land Management
(“BLM”) to research, develop and demonstrate in-situ technologies for potential
commercial shale oil production (“RD&D Leases”) in western Colorado. The
RD&D Lease awarded to AMSO, LLC by the BLM covers an area of 160 acres. The
lease runs for a ten year period beginning on January 1, 2007, and is
subject to an extension of up to five years if AMSO, LLC can demonstrate that a
process leading to the production of commercial quantities of shale oil is
diligently being pursued. Once AMSO, LLC demonstrates the economic and
environmental viability of its technology, it will have the opportunity to
submit a one time payment pursuant to the Oil Shale Management Regulations and
convert its RD&D Lease to a commercial lease on 5,120 acres which overlap
and are contiguous with the 160 acres in its RD&D Lease.




In March
2009, pursuant to a Member Interest Purchase Agreement entered into on
December 19, 2008, TOTAL E&P Research & Technology USA,
(“Total”), a subsidiary of TOTAL S.A., the world’s fifth largest integrated oil
and gas company, acquired a 50% interest in AMSO, LLC in exchange for cash paid
to the Company of $3.2 million and Total’s commitment to fund the majority of
AMSO, LLC’s research, development and demonstration expenditures. While AMSO is
the operator of the project during the RD&D phase, Total will provide a
majority of the funding during the RD&D phase, and technical assistance
throughout the life of the project. Total will lead the planning of the
commercial development and will assume management responsibilities during the
subsequent commercial phase.




The
Company consolidated AMSO, LLC prior to the closing of the transaction with
Total. Beginning with the closing, the Company accounts for its 50% ownership
interest in AMSO, LLC using the equity method since the Company has the ability
to exercise significant influence over its operating and financial matters,
although it no longer controls AMSO, LLC. AMSO, LLC is a variable interest
entity, however, the Company is not the primary beneficiary because it will not
absorb a majority of the expected losses or receive a majority of the expected
residual returns.




12
 Table of Contents





The
following table summarizes the change in the balance of the Company’s Investment
in AMSO, LLC beginning with Total’s acquisition of a 50% interest in AMSO, LLC.
The investment in AMSO, LLC is included in “Investments-long-term” in the
consolidated balance sheet and equity in net loss of AMSO, LLC is included in
“Other expense, net” in the consolidated statement of operations.




Three
      Months Ended
              October
      31, 2009
            
            
            Period
      from
              March
      2, 2009 to
              July
      31, 2009(in
      thousands)Balance, beginning of period
            
            $
            278
            
            
            $
            (65
            )Capital contributions
            
            
            303
            
            
            
            1,074Equity in net loss of AMSO, LLC
            
            
            (369
            )
            
            
            (731
            )Balance, end of period
            
            $
            212
            
            
            $
            278





In
accordance with the agreement between the parties, AMSO has committed to a total
investment of $10.0 million in AMSO, LLC, subject to certain exceptions
described below where the amount could be greater or lesser. Total has the
option of withdrawing from AMSO, LLC and terminating its obligation to make
capital contributions at the end of the first phase, and in that case AMSO’s
commitment would be reduced to $5.3 million.




Although,
subject to certain exceptions, AMSO and Total are not obligated to make
additional contributions beyond their respective shares (which for AMSO is $10.0
million), they could dilute or forfeit their ownership interests in AMSO, LLC if
they fail to contribute their respective shares for additional
funding.




Total can
increase AMSO’s initial required funding commitment of $10.0 million up to an
additional $8.75 million if Total wishes to continue to fund the pilot test up
to an agreed upon commitment level.




At
October 31, 2009, the Company’s estimated maximum exposure to additional loss as
a result of its required investment in AMSO, LLC was $7.8 million. The Company’s
estimated maximum exposure to additional loss will increase as AMSO’s commitment
to fund AMSO, LLC increases. The estimated maximum exposure at October 31,
2009 was determined as follows:




(in
      thousands)AMSO’s total committed investment in AMSO, LLC
            
            $
            10,000Less: 20% of capital contributions to AMSO, LLC prior to March 2,
      2009
            
            
            (807
            )Less: cumulative capital contributions to AMSO, LLC on and after
      March 2, 2009
            
            
            (1,377
            )Estimated
      maximum exposure to additional loss
            
            $
            7,816




AMSO’s
total committed investment in AMSO, LLC and its estimated maximum exposure to
additional loss is subject to certain exceptions where the amounts could be
greater. One exception is the additional funding that may be necessary to fund
the pilot test as described above. The other significant exception is additional
capital contributions that may be required to fund unexpected liabilities, in
the event they occur, outside the purview of the traditional research,
development and demonstration operations incorporated in AMSO, LLC’s budgeting
and planning. However, any additional capital contributions for such liabilities
would have to be authorized by both AMSO and Total.




Summarized
unaudited balance sheet data of AMSO, LLC is as follows:




October
      31,
              2009
            
            
            July 31,
              2009(in
      thousands)AssetsCash
      and cash equivalents
            
            $
            1,942
            
            
            $
            2,088Other
      current assets
            
            
            353
            
            
            
            451Equipment,
      net
            
            
            20
            
            
            
            8Other
      assets
            
            
            433
            
            
            
            —Total
      assets
            
            $
            2,748
            
            
            $
            2,547Liabilities and members’ interestsCurrent
      liabilities
            
            $
            1,300
            
            
            $
            960Other
      liabilities
            
            
            194
            
            
            
            —Members’
      interests
            
            
            1,254
            
            
            
            1,587Total
      liabilities and members’ interests
            
            $
            2,748
            
            
            $
            2,547







13
 Table of Contents




Summarized
unaudited statement of operations data of AMSO, LLC is as
follows:




Three
      Months Ended
              October
      31,2009
            
            
            2008(In
      thousands)Revenues
            
            $
            —
            
            
            $
            —Costs and expenses:Research
      and development
            
            
            1,847
            
            
            
            697Total costs and expenses
            
            
            1,847
            
            
            
            697Loss from operations
            
            
            (1,847
            )
            
            
            (697
            )Other income
            
            
            —
            
            
            
            1Net loss
            
            $
            (1,847
            )
            
            $
            (696
            )





Note
7—Equity




Changes
in the components of equity were as follows:




Three
      Months Ended
              October 31,2009Attributable
      to IDT Corporation
            
            
            Noncontrolling
      Interests
            
            
            Total(in
      thousands)Balance, July 31, 2009
            
            $
            176,294
            
            
            $
            3,148
            
            
            $
            179,442Repurchases of common stock and Class B common stock through repurchase
      program
            
            
            (1,468
            )
            
            
            —
            
            
            
            (1,468
            )Distributions
            
            
            —
            
            
            
            (1,084
            )
            
            
            (1,084
            )CTM Spin-Off
            
            
            (14,171
            )
            
            
            (1,618
            )
            
            
            (15,789
            )Stock based compensation
            
            
            1,205
            
            
            
            —
            
            
            
            1,205Comprehensive loss:Net
      loss
            
            
            (3,481
            )
            
            
            (176
            )
            
            
            (3,657
            )Other
      comprehensive income
            
            
            1,194
            
            
            
            —
            
            
            
            1,194Comprehensive
      loss
            
            
            (2,287
            )
            
            
            (176
            )
            
            
            (2,463
            )Balance, October 31, 2009
            
            $
            159,573
            
            
            $
            270
            
            
            $
            159,843




On August
1, 2009, the Company adopted the accounting standard relating to noncontrolling
interests in consolidated financial statements (see Note 14).




On
October 21, 2009, upon the retirement of Mr. James A. Courter as
the Company’s Chief Executive Officer, Mr. Courter surrendered options to
purchase an aggregate of 0.9 million shares of the Company’s Class B common
stock (which constituted all of such options held by Mr. Courter) and
received a grant of 0.3 million restricted shares of the Company’s Class B
common stock. All of the restricted shares were vested on the date of grant. For
a period of five years from the grant date, and subject to certain conditions
and adjustments for certain changes in the capitalization of the Company or the
Company’s subsidiary, Genie Energy Corporation, 0.2 million of the shares
of the Company’s Class B common stock will be convertible, at the option of
Mr. Courter, into the number of shares of Genie Energy Corporation equal to
1% of the outstanding equity of Genie Energy Corporation as of Mr. Courter’s
retirement date. Genie Energy Corporation was organized in August 2009 and will
be comprised of IDT Energy and Alternative Energy (which consists of AMSO and
the Company’s interest in Israel Energy Initiatives, Ltd.). In the three months
ended October 31, 2009, the Company recognized $0.6 million of stock based
compensation as a result of the grant of the restricted stock.




On
October 31, 2008, the Company entered into an Amended and Restated
Employment Agreement with Mr. Howard S. Jonas, the Company’s Chairman
of the Board and as of October 22, 2009 the Company’s Chief Executive
Officer. Pursuant to this agreement (i) the term of Mr. Jonas’
employment with the Company runs until December 31, 2013 and
(ii) Mr. Jonas was granted 1.2 million restricted shares of the
Company’s Class B common stock and 0.9 million restricted shares of the
Company’s common stock in lieu of a cash base salary beginning January 1,
2009 through December 31, 2013. The restricted shares vest in different
installments throughout the term of Mr. Jonas’ employment as delineated in
the agreement, and all of the restricted shares paid to Mr. Jonas under the
agreement automatically vest in the event of (i) a change in control of the
Company; (ii) Mr. Jonas’ death; or (iii) if Mr. Jonas is
terminated without cause or if he terminates his employment for good reason as
defined in the agreement. A pro rata portion of the restricted shares will vest
in the event of termination for cause. Total unrecognized compensation cost on
the grant date was $5.5 million. The unrecognized compensation cost is expected
to be recognized over the vesting period from January 1, 2009 through
December 31, 2013. The Company recognized $0.2 million and nil of the
compensation cost related to this agreement in the three months ended October
31, 2009 and 2008, respectively.




14
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On
November 5, 2008, the Company amended Mr. Courter’s employment
agreement. Pursuant to the amendment, Mr. Courter was granted
0.4 million restricted shares of the Company’s Class B common stock in lieu
of a cash base salary from January 1, 2009 until October 21, 2009. The
restricted shares vested on October 21, 2009, the last day of the term
under the amended employment agreement. Total unrecognized compensation cost on
the grant date was $0.8 million. The Company recognized $0.2 million and nil of
the compensation cost related to this agreement in the three months ended
October 31, 2009 and 2008, respectively.




In June
2006, the Company’s Board of Directors authorized a stock repurchase program for
the repurchase of up to an aggregate of 8.3 million shares of the Company’s
Class B common stock and common stock, without regard to class. On
December 17, 2008, the Company’s Board of Directors increased the aggregate
number of shares of the Company’s Class B common stock and common stock, without
regard to class, that the Company is authorized to repurchase under the stock
repurchase program from the 3.3 million shares that remained available for
repurchase to 8.3 million shares. In the three months ended October 31,
2009, the Company repurchased an aggregate of 0.2 million shares of Class B
common stock and 0.4 million shares of common stock for an aggregate
purchase price of $1.5 million. In the three months ended October 31, 2008, the
Company repurchased an aggregate of 1.2 million shares of Class B common
stock and 0.3 million shares of common stock for an aggregate purchase
price of $2.9 million. As of October 31, 2009, 5.5 million shares remained
available for repurchase under the stock repurchase program.




Note
8—Earnings Per Share




Basic
earnings per share is computed by dividing net loss attributable to all classes
of common stockholders by the weighted average number of shares of all classes
of common stock outstanding during the applicable period. Diluted earnings per
share is computed in the same manner as basic earnings per share, except that
the number of shares is increased to include non-vested restricted stock and to
assume exercise of potentially dilutive stock options and contingently issuable
shares using the treasury stock method, unless the effect of such increase is
anti-dilutive. For the three months ended October 31, 2009 and 2008, the diluted
earnings per share equals basic earnings per share because the Company had
losses from continuing operations and the impact of the assumed exercise of
stock options and non-vested restricted stock would have been anti-dilutive. The
following securities have been excluded from the dilutive earnings per share
computations because their inclusion would have been anti-dilutive:




At October
      31,2009
            
            
            2008(in
      thousands)Stock options
            
            
            902
            
            
            
            2,158Non-vested restricted stock
            
            
            2,136
            
            
            
            2,171Contingently issuable shares
            
            
            —
            
            
            
            22Total
            
            
            3,038
            
            
            
            4,351





Note
9—Comprehensive Loss




The
Company’s comprehensive loss consists of the following:




Three
      Months Ended
              October
      31,2009
            
            
            2008(in
      thousands)Net loss
            
            $
            (3,657
            )
            
            $
            (37,622
            )Foreign currency translation adjustments
            
            
            1,302
            
            
            
            (11,229
            )Unrealized (loss) gains on available-for-sale securities
            
            
            (108
            )
            
            
            2,508Comprehensive loss
            
            
            (2,463
            )
            
            
            (46,343
            )Comprehensive loss attributable to noncontrolling
interests
            
            
            176
            
            
            
            364Comprehensive loss attributable to IDT Corporation
            
            $
            (2,287
            )
            
            $
            (45,979
            )







15
 Table of Contents
  Note
10—Restructuring and Impairment Charges
  The
Company’s restructuring and impairment charges by business segment consist of
the following:
  Three Months Ended
                      October
      31,2009
                    
                    
                    2008(in
      thousands)Telecom Platform Services:Restructuring
      charges
                    
                    $
                    (60
                    )
                    
                    $
                    (780
                    )Impairments
                    
                    
                    28
                    
                    
                    
                    —
 IDT Energy – restructuring charges
                
                
                —
                
                
                
                15All Other:Restructuring
      charges
                
                
                (28
                )
                
                
                651Impairments
                
                
                (106
                )
                
                
                —Corporate – restructuring charges
                
                
                125
                
                
                
                1,328Total
                
                $
                (41
                )
                
                $
                1,214
 
 The restructuring charges in the three months ended October 31, 2009 and 2008
consisted primarily of severance related to a company-wide cost savings program
and reduction in force. As of October 31, 2009, these programs resulted in the
termination of approximately 1,580 employees since the third quarter of fiscal
2006. As of October 31, 2009, the Company had a total of approximately
1,220 employees, of which approximately 860 are located in the United States and
approximately 360 are located at the Company’s international operations. The
impairment charges in All Other in the three months ended October 31, 2009
included a reversal of $0.1 million related to the Company’s building in San
Juan, Puerto Rico that was sold in October 2009. The Telecom Platform
Services segment’s restructuring charges in the three months ended October 31,
2008 are net of the reversal of accrued severance of $2.6 million as a result of
modifications to retention and/or severance agreements with certain
employees.




The
following table summarizes the changes in the reserve balances related to the
Company’s restructuring activities (substantially all of which relates to
workforce reductions):




Balance at
              July 31,
              2009
            
            
            Charged to
              Expense
            
            
            Payments
            
            
            Non-cash
              Charges
              and
              Other
            
            
            Balance at
              October 31,
              2009(in
      thousands)IDT Telecom
            
            $
            2,918
            
            
            $
            (32
            )
            
            $
            (1,576
            )
            
            $
            —
            
            
            $
            1,310All Other
            
            
            16
            
            
            
            (134
            )
            
            
            54
            
            
            
            104
            
            
            
            40Corporate
            
            
            3,622
            
            
            
            125
            
            
            
            (1,053
            )
            
            
            —
            
            
            
            2,694Total
            
            $
            6,556
            
            
            $
            (41
            )
            
            $
            (2,575
            )
            
            $
            104
            
            
            $
            4,044





Note
11—Business Segment Information




The
Company has the following four reportable business segments: Telecom Platform
Services, Consumer Phone Services, IDT Energy and Alternative Energy. All other
operating segments that are not reportable individually are included in All
Other. Telecom Platform Services and Consumer Phone Services comprise the IDT
Telecom division. IDT Energy and Alternative Energy comprise the Genie Energy
division. The Company’s reportable segments are distinguished by types of
service, customers and methods used to provide their services. The operating
results of these business segments are regularly reviewed by the Company’s chief
operating decision maker.




The
Telecom Platform Services segment provides various telecommunications services
including prepaid and rechargeable calling cards, a range of voice over Internet
protocol, or VoIP, communications services and wholesale carrier services. The
Consumer Phone Services segment provides consumer local and long distance
services in the United States. The IDT Energy segment operates the Company’s
energy services company, or ESCO, in New York State. The Alternative Energy
segment consists of AMSO, which holds and manages the Company’s 50% interest in
AMSO, LLC, the Company’s U.S. oil shale initiative, and the Company’s 89%
interest in Israel Energy Initiatives, Ltd., the Company’s Israeli alternative
energy venture. All Other includes Zedge, which provides a web-based, worldwide
destination for free, user-generated mobile content distribution and sharing,
certain real estate and other smaller businesses. Corporate costs include
certain services, such as corporate compensation, consulting fees, treasury and
accounts payable, tax and accounting services, human resources and payroll,
corporate purchasing, corporate governance including Board of Directors’ fees,
internal and external audit, public and investor relations, corporate insurance,
corporate legal, and business development, and other corporate-related general
and administrative expenses including, among others, facilities costs,
charitable contributions and travel, as well as depreciation expense on
corporate assets. Corporate does not generate any revenues, nor does it incur
any direct cost of revenues.




Alternative
Energy, which was previously included in All Other, is a reportable business
segment beginning in the first quarter of fiscal 2010. To the extent possible,
comparative historical results have been reclassified and restated as if the
fiscal 2010 business segment structure existed in all periods presented,
although these results may not be indicative of the results which would have
been achieved had the business segment structure been in effect during those
periods.




16
 Table of Contents





The
accounting policies of the segments are the same as the accounting policies of
the Company as a whole. The Company evaluates the performance of its business
segments based primarily on operating income (loss). IDT Telecom depreciation
and amortization are allocated to Telecom Platform Services and Consumer Phone
Services because the related assets are not tracked separately by segment. There
are no other significant asymmetrical allocations to segments.




Operating
results for the business segments of the Company are as follows:




(in
      thousands)
            
            Telecom
                Platform
                Services
            
            
            Consumer
                Phone
                Services
            
            
            IDT
                Energy
            
            
            Alternative
      Energy
            
            
            All
      Other
            
            
            Corporate
            
            
            TotalThree Months Ended October 31, 2009Revenues
            
            $
            275,184
            
            
            $
            10,367
            
            
            $
            40,312
            
            
            $
            —
            
            
            $
            1,466
            
            
            $
            —
            
            
            $
            327,329Operating (loss) income
            
            
            (4,780
            )
            
            
            3,876
            
            
            
            10,494
            
            
            
            (1,496
            )
            
            
            (1,973
            )
            
            
            (5,966
            )
            
            
            155Restructuring and impairment charges
            
            
            (32
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (134
            )
            
            
            125
            
            
            
            (41
            )Three Months Ended October 31, 2008Revenues
            
            $
            320,140
            
            
            $
            15,401
            
            
            $
            67,160
            
            
            $
            —
            
            
            $
            1,091
            
            
            $
            —
            
            
            $
            403,792Operating (loss) income
            
            
            (9,297
            )
            
            
            5,588
            
            
            
            11,104
            
            
            
            (876
            )
            
            
            (5,858
            )
            
            
            (12,712
            )
            
            
            (12,051
            )Restructuring and impairment charges
            
            
            (780
            )
            
            
            —
            
            
            
            15
            
            
            
            —
            
            
            
            651
            
            
            
            1,328
            
            
            
            1,214





Note
12—Legal Proceedings




On
July 2, 2009, Southwestern Bell Telephone Company and nine of its
affiliates (collectively “Southwestern Bell”), all local exchange carriers,
filed a complaint in the United States District Court for the Northern District
of Texas seeking an accounting as well as declaratory, injunctive and
monetary relief from the Company’s subsidiaries IDT Telecom, Inc., Entrix
Telecom Inc. and several as of yet unidentified entities affiliated with the
Company. The complaint alleges that the Company’s subsidiaries failed to
pay hundreds of thousands, and potentially millions of dollars of
“switched access service” charges for calls made by consumers using the
Company’s subsidiaries’ prepaid calling cards. The complaint alleges causes of
action for (i) violation of federal tariffs, (ii) violation of state
tariffs, and (iii) unjust enrichment. On October 9, 2009, the
Company filed a motion to stay or in the alternative to dismiss the complaint,
which Southwestern Bell opposed. The Company’s reply is due on December 29,
2009. At this stage of the proceedings, the Company is unable to estimate its
potential liability for this claim.




On
May 15, 2009, a complaint (which was subsequently amended) was filed by
T-Mobile USA, Inc. (“T-Mobile”) against a subsidiary of the Company, IDT
Domestic Telecom, Inc. (“Domestic Telecom”), in the Superior Court of the State
of Washington, King County. The complaint alleges that Domestic Telecom breached
a Wholesale Supply Agreement entered into between T-Mobile and Domestic Telecom
in February 2005, as amended, by failing to purchase at least $75 million in
services from T-Mobile (T-Mobile claims that Domestic Telecom purchased only
approximately $31 million of services). T-Mobile is seeking monetary damages,
including interest and costs, in an amount to be determined at trial. The
Company answered the complaint and asserted various counterclaims arising from
T-Mobile’s interference with the sales efforts of the Company’s prepaid wireless
unit. The Court recently denied T-Mobile’s motion for judgment on the pleadings
in which T-Mobile had requested damages in an amount of approximately $44
million, and discovery will commence shortly. The Company believes that it has
valid defenses to T-Mobile’s allegations and intends to conduct a vigorous legal
defense. This matter is in its early stages and therefore the Company is unable
to form an estimate of any potential liabilities to the Company related to this
matter.




On May 5, 2004, the Company filed
a complaint in the Supreme Court of the State of New York, County of New York,
seeking injunctive relief and damages against Tyco Group, S.A.R.L., Tyco
Telecommunications (US) Inc. (f/k/a TyCom (US) Inc.), Tyco International,
Ltd., Tyco International (US) Inc., and TyCom Ltd. The Company alleged that the
defendants breached a settlement agreement that they had entered into with the
Company to resolve certain disputes and civil actions among the parties. The
Company alleged that the defendants did not provide the Company, as required
under the settlement agreement, free of charge and for the Company’s exclusive
use, a 15-year indefeasible right to use four Wavelengths in Ring Configuration
(as defined in the settlement agreement) (“Wavelengths”) on a global undersea
fiber optic network that TyCom Ltd. was deploying at that time. In June 2004,
Tyco International (US) Inc. and Tyco Telecommunications (US) Inc. asserted
several counterclaims against the Company, alleging that the Company breached
the settlement agreement and is liable for damages for allegedly refusing to
accept the defendants’ offer regarding the Wavelengths referenced in the
settlement agreement and for making a public statement that Tyco failed to
provide the Company with the use of its Wavelengths. On August 19, 2008,
the Appellate Division granted summary judgment in favor of defendants
dismissing the complaint and remanded the matter to the Supreme Court for
further proceedings. On October 22, 2009, the Court of Appeals issued an
Order denying the Company’s appeal and affirming the Appellate Division’s order.
On November 17, 2009, the Company sent the defendants a letter demanding that
they comply with their obligations under the settlement agreement. The
defendants responded to the Company’s letter and requested a meeting to discuss
the matter further.




17
 Table of Contents




On
March 29, 2004, D. Michael Jewett (“Jewett”), a former employee whose
employment the Company terminated less than seven months after he was first
hired, filed a complaint against the Company in the United States District
Court, District of New Jersey, following his termination. The complaint alleges
(i) violations of the New Jersey Anti-Racketeering Statute;
(ii) violations of the New Jersey Conscientious Employee Protection Act
(“CEPA”); (iii) violations of the New Jersey Law Against Discrimination
(“LAD”); (iv) common law defamation; and (v) New Jersey common law
intentional infliction of emotional distress (“IIED”). Jewett is seeking damages
of $31 million, plus attorneys’ fees. The Court dismissed the Anti-Racketeering
claim and a portion of the LAD claim; and narrowed the remaining claims
described above. The Company denies liability for the remaining claims. On
January 25, 2006, Jewett filed an amended supplemental pleading which the
Company moved to dismiss. Plaintiff opposed the Company’s motion. On
September 11, 2007, Judge Chesler issued an order which dismissed the CEPA
and LAD claims, without prejudice, against all individual defendants with the
exception of Jewett’s direct supervisor. Judge Chesler also granted in part and
denied in part the Company’s motion to dismiss the supplemental complaint. Judge
Chesler dismissed plaintiff’s abuse of process and defamation claims with
prejudice. However, the judge denied the motion to dismiss the count for IIED.
Thereafter, defendants were permitted to file another motion to dismiss
plaintiff’s IIED claim in the amended supplemental complaint, which the
plaintiff opposed. On February 19, 2008, Judge Chesler issued an Opinion
and Order dismissing plaintiff’s IIED claim. Plaintiff also sought leave to
amend his complaint and supplemental complaint to add some additional claims,
which was denied as well. The parties participated in non-binding mediation on
December 15, 2008, which was not successful. Fact discovery is complete and
the parties are now engaged in expert discovery.




On
April 1, 2004, Jewett sent a copy of his complaint to the United States
Attorney’s Office because in his complaint, Jewett alleged, among other things,
that improper payments were made to foreign officials in connection with an IDT
Telecom contract. As a result, the Department of Justice (“DOJ”), the SEC and
the United States Attorney in Newark, New Jersey conducted an investigation of
this matter. The Company and the Audit Committee of the Company’s Board of
Directors initiated independent investigations, by outside counsel, regarding
certain of the matters raised in the Jewett complaint and in these
investigations. Neither the Company’s nor the Audit Committee’s investigations
have found any evidence that the Company made any such improper payments to
foreign officials. The Company continues to cooperate with these investigations,
which the SEC and DOJ have confirmed are still ongoing.




On
June 1, 2006, the Company filed a complaint in the United States District
Court for the District of New Jersey alleging that eBay, Inc., Skype
Technologies SA, Skype, Inc. and several as of yet unidentified business
entities (collectively, “Skype”) infringed patents owned by the Company. The
Company’s complaint was amended to include claims for Skype’s alleged
infringement of additional patents, all owned by the Company. The lawsuit seeks,
among other things, an injunction enjoining Skype from infringing these patents
and monetary damages in connection with Skype’s alleged infringement. Skype has
answered the complaint and amended complaints, denying any liability with
respect to the Company’s claims and asserted counterclaims. The parties have
exchanged expert reports, are completing pre-trial discovery and submitted a
final pre-trial order to the Court in December 2008. A request has been filed
with the United States Patent and Trademark Office (“USPTO”) to reexamine the
patents in question. Subsequently, Skype filed a motion to stay the New Jersey
litigation pending the USPTO’s decision on the request for reexamination. The
motion to stay was denied. Efforts to reach a settlement of this matter are
ongoing. On February 20, 2008, eBay, Inc. filed a complaint (which was
subsequently amended) in the United States District Court for the Western
District of Arkansas alleging that IDT Corporation, Net2Phone, Inc., IDT
Telecom, Inc. and UTA infringed U.S. Patent No. 6,067,350 that is owned by
eBay, Inc. The lawsuit seeks, among other things, an injunction enjoining the
Company from infringing the patent and an undetermined amount of monetary
damages in connection with the Company’s alleged infringement. On April 23,
2008, the Company answered eBay’s complaint and denied all wrongdoing. The
Company also filed counterclaims against eBay for infringement of Net2Phone
patents: U.S. Patents numbers 6,275,490; 5,974,414; and 6,631,399. The
Company asked the court in Arkansas to enjoin those portions of eBay’s auction
business that infringe Net2Phone patents and to award Net2Phone damages as a
result of eBay’s patent infringement. eBay has answered Net2Phone’s
counterclaims, denied all wrongdoing and asserted counterclaims. The Court held
a claim construction hearing on February 24-25, 2009. Fact discovery closed
on September 25, 2009. The parties have mutually agreed to continue all
prior noticed depositions and reserve the right to supplement discovery in
accordance with the Federal Rules of Procedure. On October 22, 2009, the
parties filed a Joint Motion to Continue the Case Deadlines by 120 days in both
the New Jersey litigation and the Arkansas litigation, and the trial date of
March 15, 2010 has been vacated. The parties are scheduled to participate
in non-binding mediation on January 12 – 13, 2010.




On
March 8, 2007, IDT Telecom, Inc. and UTA filed a complaint and on
April 2, 2007 an amended complaint in the United States District Court for
the District of New Jersey against several prepaid calling card companies. The
lawsuit alleges that the defendants are systematically falsely promising minutes
in their voice prompts and other advertisements that consumers cannot obtain
from the cards they have bought. The Company sought an injunction barring the
defendants from continuing their false promises as well as money damages and
asserts that the defendants have violated the federal Lanham Act as well as
several states’ false advertising and deceptive trade practices statutes. On
May 9, 2007, the judge denied the Company’s motion for a preliminary
injunction, which decision was affirmed by the Court of Appeals for the Third
Circuit, and also denied motions to dismiss filed by all of the non-settling
defendants who claimed that the Court lacked jurisdiction. In 2007, the Company
settled with five of the defendant groups. The litigation is continuing against
the non-settling STi defendants. On February 11, 2009, the STi defendants
filed motions for summary judgment, which the Company opposed. These motions are
set for January 4, 2010 before Chief Judge Brown and will





18
 Table of Contents
 
 be
decided on the papers. The parties attempted to mediate this case but were
unsuccessful. The trial is expected to begin on March 1,
2010.




In
addition to the foregoing, the Company is subject to other legal proceedings
that have arisen in the ordinary course of business and have not been finally
adjudicated. Although there can be no assurance in this regard, in the opinion
of the Company’s management, none of the other legal proceedings to which the
Company is a party will have a material adverse effect on the Company’s results
of operations, cash flows or financial condition.




Note
13—Commitments and Contingencies




The
Company had purchase commitments and other obligations of $1.6 million as of
October 31, 2009.




The
Company currently remains subject to examinations of its income tax returns as
follows: U.S. federal tax returns for fiscal 2005 to fiscal 2009, state and
local tax returns generally for fiscal 2001 to fiscal 2009 and foreign tax
returns generally for fiscal 2002 to fiscal 2009. The Internal Revenue Service
is currently conducting an audit of the Company’s U.S. federal tax returns for
fiscal years 2006, 2007 and 2008. Management of the Company believes that it has
adequately reserved for all tax positions, however amounts asserted by taxing
authorities could be greater than the accrued amounts. Accordingly, additional
tax provisions may be recorded in the future as revised estimates are made or
the underlying matters are settled or resolved.




The
Company is subject to value added tax (“VAT”) audits from time-to-time in
various jurisdictions. On September 4, 2008, a Swedish court granted an
application made by the Swedish Tax Agency to seize SEK 100 million ($13.2
million) of assets owned by one of the Company’s subsidiaries, Inter Direct Tel
Ltd., as security for payment of VAT. Inter Direct Tel appealed the seizure
order and on October 6, 2008, the appellate court reversed the lower
court’s seizure order. On December 17, 2008, the Swedish Tax Agency
sent Inter Direct Tel an Audit Memo describing its reasoning for a VAT
assessment of approximately SEK 112 million ($14.8 million) and SEK
22 million ($2.9 million) in penalties. On March 27, 2009, Inter
Direct Tel responded to the comments in the Audit Memo. On June 5,
2009, Inter Direct Tel received a re-assessment from the Swedish Tax Agency in
the same amounts assessed in the Audit Memo with the payment due on
July 13, 2009. Inter Direct Tel received a suspension of the payment
obligation until the matter is addressed by the appropriate court. On
September 30, 2009, Inter Direct Tel filed an appeal of the re-assessment.
On October 27, 2009, the Swedish Tax Agency issued its decision on the
re-assessment which did not change its previous assessment. On December 9, 2009,
Inter Direct Tel submitted its response to the Swedish Tax Agency’s decision to
the County Administrative Court. The Company cannot be certain of the ultimate
outcome of this matter at this time. Imposition of assessments as a result of
VAT audits could have an adverse affect on the Company’s results of operations,
cash flows and financial condition.




The
Company is subject to audits in various jurisdictions for various other taxes,
including sales and use tax, payroll tax, gross receipts tax and property tax.
Two of the more significant audits relate to sales and use tax in New Jersey and
payroll tax in Newark, New Jersey, for which the Company has accrued an
aggregate of $5.7 million as of October 31, 2009. Management of the Company
believes that it has adequately provided for all of the obligations for these
taxes, however amounts asserted by taxing authorities or the amount ultimately
assessed against the Company could be greater than the accrued amounts.
Accordingly, additional provisions may be recorded in the future as revised
estimates are made or underlying matters are settled or resolved. Imposition of
assessments as a result of audits related to these other taxes could have an
adverse affect on the Company’s results of operations, cash flows and financial
condition.




As of
October 31, 2009, the Company had letters of credit outstanding totaling $21.4
million, the majority of which expire by October 31, 2010. As of October 31,
2009 and July 31, 2009, cash and cash equivalents of $15.2 million and $65.0
million, respectively, that serve as collateral were restricted against such
letters of credit, and were included in “Restricted cash and cash equivalents”
in the Company’s condensed consolidated balance sheets. Also, as of October 31,
2009 and July 31, 2009, marketable securities of $5.1 million and $5.1 million,
respectively were restricted primarily against letters of credit, and were
included in “Marketable securities” in the Company’s condensed consolidated
balance sheets. The letters of credit outstanding at October 31, 2009 and July
31, 2009 were collateral to secure equipment financing, mortgage repayments on
various buildings and IDT Energy’s purchases of natural gas, electric capacity,
energy and ancillary services.




As of
June 29, 2009, IDT Energy entered into a Preferred Supplier Agreement with
BP Energy Company and BP Corporation North America Inc. (collectively “BP”),
pursuant to which BP is IDT Energy’s preferred provider of electricity and
natural gas in New York State. The agreement allows for purchases of electricity
and natural gas for customers in areas where the utilities have purchase of
receivable programs, and includes a one-time inclusion of existing IDT Energy
customers not covered by a purchase of receivable program. IDT Energy purchases
electricity and natural gas from BP and pays a fee based on volumetric loads in
accordance with the agreement. IDT Energy’s obligations to BP are secured by its
receivables from its customers and under certain circumstances the posting of
letters of credit. The term of this agreement is two years, with an automatic
renewal for an additional year unless either party objects. IDT Energy’s ability
to purchase electricity and natural gas under this agreement is subject to
satisfaction of certain conditions including the maintenance of certain
covenants. As a result of this agreement, an aggregate of $57.0 million in
letters of credit outstanding at July 31, 2009 that was collateral for IDT
Energy was reduced to $7.0 million at October 31, 2009.




19
 Table of Contents





As of
October 31, 2009 and July 31, 2009, “Cash and cash equivalents” in the Company’s
condensed consolidated balance sheets included approximately $10 million that
was held pursuant to regulatory requirements related to IDT Financial Services,
our European prepaid payment services business.




In
connection with the sale of IDT Entertainment to Liberty Media Corporation in
the first quarter of fiscal 2007, the Company is eligible to receive additional
consideration from Liberty Media based upon any appreciation in the value of IDT
Entertainment over the five-year period following the closing of the transaction
or a shorter period under specified circumstances (“Contingent Value”), equal to
25% of the excess, if any, of the net equity value of IDT Entertainment over
$453 million. However, the Company would have to pay Liberty Media up to
$3.5 million if the Contingent Value does not exceed $439 million, for which
$3.5 million is included in “Other long-term liabilities” in the condensed
consolidated balance sheet.




Note
14—Recently Adopted Accounting Standards and Recently Issued Accounting
Standards Not Yet Adopted




In
September 2009, the Company adopted changes issued by the Financial Accounting
Standards Board (“FASB”) to the authoritative hierarchy of U.S. GAAP. These
changes establish the FASB Accounting Standards CodificationTM (or Codification)
as the source of authoritative U.S. GAAP for all non-governmental entities.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative U.S. GAAP for SEC registrants. The
Codification did not change or alter existing U.S. GAAP. The adoption of these
changes had no impact on the Company’s financial position, results of operations
or cash flows.




On
August 1, 2009, the Company adopted the accounting standard relating to
noncontrolling interests in consolidated financial statements. This standard
clarifies that a noncontrolling interest in a subsidiary, which was previously
referred to as a minority interest, is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Also, this standard requires consolidated net income (loss) to
include the amounts attributable to both the parent and the noncontrolling
interest, and it requires disclosure of the amounts of net income (loss)
attributable to the parent and to the noncontrolling interest. Finally, this
standard requires increases and decreases in the noncontrolling ownership
interest amount to be accounted for as equity transactions, and the gain or loss
on the deconsolidation of a subsidiary will be measured using the fair value of
any noncontrolling equity investment rather than the carrying amount of the
retained investment. As required by this standard, the Company retrospectively
changed the classification and presentation of noncontrolling interests in its
financial statements for all prior periods. The adoption of this standard did
not have a material impact on the Company’s financial position, results of
operations or cash flows.




In April
2009, the FASB issued a standard that amends the requirements for disclosures
about fair value of financial instruments, which were previously only required
in the annual financial statements of publicly traded companies. The standard
requires such disclosures for interim reporting periods of publicly traded
companies as well. The standard also requires entities to disclose the methods
and significant assumptions used to estimate fair value of financial instruments
in interim financial statements, and to highlight any changes in the methods and
assumptions from prior periods. This standard was effective for the Company’s
financial statements beginning on May 1, 2009. The adoption of this
standard had no impact on the Company’s consolidated financial statements, other
than the required disclosures that are included in Note 4.




In June
2009, the FASB issued changes to the accounting for transfers of financial
assets. These changes include (a) eliminating the concept of a qualifying
special-purpose entity (“QSPE”), (b) clarifying and amending the
derecognition criteria for a transfer to be accounted for as a sale,
(c) amending and clarifying the unit of account eligible for sale
accounting, and (d) requiring that a transferor initially measure at fair
value and recognize all assets obtained and liabilities incurred as a result of
a transfer of an entire financial asset or group of financial assets accounted
for as a sale. Additionally, on and after the effective date, existing QSPEs
must be evaluated for consolidation by reporting entities in accordance with the
applicable consolidation guidance. These changes also require enhanced
disclosures about, among other things, (a) a transferor’s continuing
involvement with transfers of financial assets accounted for as sales,
(b) the risks inherent in the transferred financial assets that have been
retained, and (c) the nature and financial effect of restrictions on the
transferor’s assets that continue to be reported in the statement of financial
position. The Company is required to adopt these changes on August 1, 2010.
The Company is currently evaluating the impact of these changes on its
consolidated financial statements.




In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (“VIE”) including amending the guidance governing the
determination of whether an enterprise is the primary beneficiary of a VIE, and
is, therefore, required to consolidate the entity, by requiring a qualitative
analysis rather than a quantitative analysis. The qualitative analysis will
include, among other things, consideration of who has the power to direct the
activities of the entity that most significantly impact the entity’s economic
performance and who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE. The
changes also require continuous reassessments of whether an enterprise is the
primary beneficiary of a VIE and enhanced disclosures about an enterprise’s
involvement with a VIE. The Company is required to adopt these changes on
August 1, 2010. The Company is currently evaluating the impact of these
changes on its consolidated financial statements.




20
 Table of Contents





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 our Management’s Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended July 31, 2009, as filed with the U.S. Securities and Exchange
Commission (or SEC).




In
accordance with Item 10(f)(2)(iii) of Regulation S-K, we qualify as a
“smaller reporting company” because our public float was below $50 million as of
January 30, 2009, the last business day of our second fiscal quarter. We
therefore followed the disclosure requirements of Regulation S-K applicable to
smaller reporting companies in this Quarterly Report on Form 10-Q.




As used
below, unless the context otherwise requires, the terms “the Company,” “IDT,”
“we,” “us,” and “our” refer to IDT Corporation, a Delaware corporation, its
predecessor, International Discount Telecommunications, Corp., a New York
corporation, and their subsidiaries, collectively.




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,” “plans,” “intends,” and similar
words and phrases. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from the
results projected in any forward-looking statement. In addition to the factors
specifically noted in the forward-looking statements, other important factors,
risks and uncertainties that could result in those differences include, but are
not limited to, those discussed under Item 1A to Part I “Risk Factors” in
our Annual Report on Form 10-K for the fiscal year ended July 31, 2009. The
forward-looking statements are made as of the date of this report and we assume
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 in this
report and the other information set forth from time to time in our reports
filed with the SEC pursuant to the Securities Act of 1933 and the Securities
Exchange Act of 1934, including our Annual Report on Form 10-K for the year
ended July 31, 2009.




Overview




General




We are a
consumer services focused, multinational holding company with operations
primarily in the telecommunications and energy industries. Our principal
businesses consist of:




•
            IDT
      Telecom, which provides retail and wholesale telecommunications services
      and products, including prepaid and rechargeable calling cards and
      wholesale carrier services; and




•
            Genie
      Energy, which is comprised of IDT Energy and Alternative Energy. IDT
      Energy operates our energy services company, or ESCO, in New York State,
      which provides electricity and natural gas to residential and small
      business customers. Alternative Energy consists of American Shale Oil
      Corporation, or AMSO, which holds and manages our 50% interest in American
      Shale Oil, L.L.C., or AMSO, LLC, our U.S. oil shale initiative, and Israel
      Energy Initiatives, Ltd., or IEI, our Israeli alternative energy
      venture.




We also
hold assets including certain real estate and operate other smaller or
early-stage initiatives and operations.




We
conduct our business through the following four reportable segments: Telecom
Platform Services, Consumer Phone Services, IDT Energy and Alternative Energy.
All other operating segments that are not reportable individually are included
in All Other. Telecom Platform Services and Consumer Phone Services comprise the
IDT Telecom division. IDT Energy and Alternative Energy comprise the Genie
Energy division.




Discontinued
Operations




CTM
Media Holdings, Inc.




On
September 14, 2009, we completed the CTM Spin-Off, which was a pro rata
distribution of the common stock of CTM Media Holdings, Inc., or CTM Holdings,
to our stockholders of record as of the close of business on August 3,
2009. CTM Holdings’ businesses include: CTM Media Group, which is a distributor
of print and online advertising and information in targeted North American
tourist markets; IDW Publishing, which is a comic and book publisher with a
diverse catalog of licensed and independent titles; and WMET 1160AM, which is a
paid programming radio station in the Washington, D.C. metropolitan area. CTM
Holdings and subsidiaries met the criteria to be reported as discontinued
operations and accordingly, their assets, liabilities, results of operations and
cash flows are classified as discontinued operations for all periods presented.
As of September 14, 2009, each of our stockholders





21
 Table of Contents
 
 of record
as of the close of business on the record date received: (i) one share of
CTM Holdings Class A common stock for every three shares of the Company’s
common stock; (ii) one share of CTM Holdings Class B common stock for every
three shares of the Company’s Class B common stock; (iii) one share of CTM
Holdings Class C common stock for every three shares of the Company’s
Class A common stock; and (iv) cash in lieu of a fractional share of
all classes of CTM Holdings’ common stock.




In
September 2009, prior to the CTM Spin-Off, we funded CTM Holdings with an
additional $2.0 million in cash.




Hillview
Avenue Realty, LLC




On
July 31, 2009, Hillview Avenue Realty, LLC, or Hillview, a majority owned
subsidiary of ours, closed on the sale of its property located at 3373 and 3375
Hillview Avenue in Palo Alto, California. We have a 69.27% ownership interest in
Hillview. The property consisted of two interconnected office buildings located
on 6.68 acres. The sales price was $62.7 million. Our proceeds from the sale,
after deduction of the mortgage debt secured by the property that was assumed by
the buyer or repaid in connection with the sale, and transaction expenses were
$4.4 million, which was received in August 2009. In November 2009, we paid $1.5
million of the proceeds to the other owners of Hillview. This sale met the
criteria to be reported as discontinued operations and accordingly, the assets,
liabilities, results of operations and cash flows of the property are classified
as discontinued operations for all periods presented.




Union
Telecard Dominicana, S.A and Ethnic Grocery Brands LLC





On
June 24, 2009, we acquired the 49% interest in Union Telecard Alliance,
LLC, or UTA, that we did not own in exchange for (a) $4.9 million in cash,
(b) a promissory note in the principal amount of $1.2 million payable in
thirty-six equal monthly installments, (c) the forgiveness of a note
receivable in the amount of $1.2 million including principal and accrued
interest, (d) the assignment of all of the interests in Union Telecard
Dominicana, S.A., or UTA DR, held by UTA, (e) the assignment of an 80%
ownership interest in Ethnic Grocery Brands LLC, or EGB, held by UTA, and
(f) other consideration of $0.4 million. UTA retained a 10% ownership
interest in EGB. In addition, the seller may receive up to an additional $1.7
million for post-closing contingencies. The aggregate purchase price was $9.7
million, which included the aggregate estimated fair value of the interests in
UTA DR and EGB of $2.0 million. UTA is the distributor of our prepaid calling
cards in the United States. UTA DR and EGB met the criteria to be reported as
discontinued operations and accordingly, the assets, liabilities, results of
operations and cash flows of UTA DR and EGB are classified as discontinued
operations for all periods presented.




IDT
Carmel




On
January 30, 2009, IDT Carmel, Inc., IDT Carmel Portfolio Management LLC,
and FFPM Carmel Holdings I LLC (all of which are subsidiaries of ours and are
collectively IDT Carmel) and Sherman Originator III LLC consummated the sale,
pursuant to a Purchase and Sale Contract, of substantially all of IDT Carmel
Portfolio Management LLC’s debt portfolios with an aggregate face value of
$951.6 million for cash of $18.0 million. We exited the debt collection business
in April 2009. IDT Carmel met the criteria to be reported as a discontinued
operation and accordingly, IDT Carmel’s assets, liabilities, results of
operations and cash flows are classified as discontinued operations for all
periods presented. Loss on sale of discontinued operations in the three months
ended October 31, 2009 of $0.1 million included costs which arose from and were
directly related to the operations of IDT Carmel prior to its
disposal.




IDT
Entertainment




In the
first quarter of fiscal 2007, we completed the sale of IDT Entertainment to
Liberty Media Corporation. Loss on sale of discontinued operations in the three
months ended October 31, 2008 of $0.2 million included compensation which arose
from and was directly related to the operations of IDT Entertainment prior to
its disposal.






22
 Table of Contents




Summary
Financial Data of Discontinued Operations
  Revenues,
(loss) income before income taxes and net loss of CTM Holdings and subsidiaries,
Hillview, UTA DR, EGB and IDT Carmel, which are included in discontinued
operations, were as follows:




Three
      Months Ended
              October
      31,2009
            
            
            2008(in
      thousands)Revenues:CTM
      Holdings and subsidiaries
            
            $
            4,045
            
            
            $
            9,057Hillview
            
            
            —
            
            
            
            1,655UTA
      DR
            
            
            —
            
            
            
            11,171EGB
            
            
            —
            
            
            
            6,827IDT
      Carmel
            
            
            —
            
            
            
            8,852Total
            
            $
            4,045
            
            
            $
            37,562


Income (loss) before income taxes:CTM
      Holdings and subsidiaries
            
            $
            217
            
            
            $
            4Hillview
            
            
            —
            
            
            
            (235
            )UTA
      DR
            
            
            —
            
            
            
            (78
            )EGB
            
            
            —
            
            
            
            (713
            )IDT
      Carmel
            
            
            —
            
            
            
            (710
            )Total
            
            $
            217
            
            
            $
            (1,732
            )


Net income (loss):CTM
      Holdings and subsidiaries
            
            $
            7
            
            
            $
            (164
            )Hillview
            
            
            —
            
            
            
            (235
            )UTA
      DR
            
            
            —
            
            
            
            (78
            )EGB
            
            
            —
            
            
            
            (713
            )IDT
      Carmel
            
            
            —
            
            
            
            (710
            )Total
            
            $
            7
            
            
            $
            (1,900
            )




European
Prepaid Payment Services Business




On
July 9, 2009, we entered into an agreement for the sale of the capital
stock of IDT Financial Services Holding Limited, or IDT Financial Services, our
European prepaid payment services business. IDT Financial Services provides
prepaid MasterCard®
products in the United Kingdom under the “Prime Card” brand. In the fourth
quarter of fiscal 2009, IDT Financial Services met the criteria to be classified
as held for sale and reported as discontinued operations. On October 31, 2009,
as a result of certain events that indicated that the buyer was unlikely to
complete the transaction, we concluded that the sale was no longer probable.
Therefore, IDT Financial Services no longer met the criteria to be classified as
held for sale and reported as discontinued operations. Accordingly, the assets,
liabilities, results of operations and cash flows of IDT Financial Services are
classified as continuing operations for all periods presented.




Investment
in American Shale Oil, LLC




In April
2008, AMSO acquired a 75% equity interest in AMSO, LLC in exchange for cash of
$2.5 million and certain commitments for future funding of AMSO, LLC’s
operations. In a separate transaction in April 2008, we acquired an additional
14.9437% equity interest in AMSO, LLC in exchange for cash of $3.0
million.




AMSO, LLC
is one of three holders of leases granted by the U.S. Bureau of Land Management,
or BLM, to research, develop and demonstrate in-situ technologies for potential
commercial shale oil production, or RD&D Leases, in western Colorado. The
RD&D Lease awarded to AMSO, LLC by the BLM covers an area of 160 acres. The
lease runs for a ten year period beginning on January 1, 2007, and is
subject to an extension of up to five years if AMSO, LLC can demonstrate that a
process leading to the production of commercial quantities of shale oil is
diligently being pursued. Once AMSO, LLC demonstrates the economic and
environmental viability of its technology, it will have the opportunity to
submit a one time payment pursuant to the Oil Shale Management Regulations and
convert its RD&D Lease to a commercial lease on 5,120 acres which overlap
and are contiguous with the 160 acres in its RD&D Lease.




In March
2009, pursuant to a Member Interest Purchase Agreement entered into on
December 19, 2008, TOTAL E&P Research & Technology USA, or
Total, a subsidiary of TOTAL S.A., the world’s fifth largest integrated oil and
gas company, acquired a 50% interest in AMSO, LLC in exchange for cash paid to
us of $3.2 million and Total’s commitment to fund the majority of AMSO, LLC’s
research, development and demonstration expenditures. While AMSO is the operator
of the project during the RD&D phase, Total will provide a majority of the
funding during the RD&D phase, and technical assistance throughout the life
of the project. Total will lead the planning of the commercial development and
will assume management responsibilities during the subsequent commercial
phase.




23
 Table of Contents




We
consolidated AMSO, LLC prior to the closing of the transaction with Total.
Beginning with the closing, we account for our 50% ownership interest in AMSO,
LLC using the equity method since we have the ability to exercise significant
influence over its operating and financial matters, although we no longer
control AMSO, LLC. AMSO, LLC is a variable interest entity, however, we are not
the primary beneficiary because we will not absorb a majority of the expected
losses or receive a majority of the expected residual returns.




In
accordance with the agreement between the parties, AMSO has committed to a total
investment of $10.0 million in AMSO, LLC, subject to certain exceptions
described below where the amount could be greater or lesser. Total has the
option of withdrawing from AMSO, LLC and terminating its obligation to make
capital contributions at the end of the first phase, and in that case AMSO’s
commitment would be reduced to $5.3 million.




Although,
subject to certain exceptions, AMSO and Total are not obligated to make
additional contributions beyond their respective shares (which for AMSO is $10.0
million), they could dilute or forfeit their ownership interests in AMSO, LLC if
they fail to contribute their respective shares for additional
funding.




Total can
increase AMSO’s initial required funding commitment of $10.0 million up to an
additional $8.75 million if Total wishes to continue to fund the pilot test up
to an agreed upon commitment level.




At
October 31, 2009, our estimated maximum exposure to additional loss as a result
of the required investment in AMSO, LLC was $7.8 million. Our estimated maximum
exposure to additional loss will increase as AMSO’s commitment to fund AMSO, LLC
increases. The estimated maximum exposure at October 31, 2009 was
determined as follows:




(in
      millions)AMSO’s total committed investment in AMSO, LLC
            
            $
            10.0Less: 20% of capital contributions to AMSO, LLC prior to March 2,
      2009
            
            
            (0.8
            )Less: cumulative capital contributions to AMSO, LLC on and after
      March 2, 2009
            
            
            (1.4
            )Estimated maximum exposure to additional loss
            
            $
            7.8




AMSO’s
total committed investment in AMSO, LLC and its estimated maximum exposure to
additional loss is subject to certain exceptions where the amounts could be
greater. One exception is the additional funding that may be necessary to fund
the pilot test as described above. The other significant exception is additional
capital contributions that may be required to fund unexpected liabilities, in
the event they occur, outside the purview of the traditional research,
development and demonstration operations incorporated in AMSO, LLC’s budgeting
and planning. However, any additional capital contributions for such liabilities
would have to be authorized by both AMSO and Total.




Telecom
Competition




Since our
inception, we have derived the majority of our revenues and operating expenses
from IDT Telecom’s businesses. IDT Telecom’s revenues represented 87.2% of our
total revenues from continuing operations in the three months ended October 31,
2009, compared to 83.1% in the three months ended October 31, 2008.




In all of
our significant IDT Telecom lines of business, our competitors continue to
aggressively price their services. In addition, we often notice that many of our
competitors, particularly in the U.S., significantly overstate the number of
minutes that are actually delivered by their calling cards. These competitors
have been misleading calling card customers, and as a result, negatively
impacting our market share, resulting in a reduction in our gross revenues and
profits. We also believe that there may have been a gradual shift in demand
industry-wide away from calling cards and into wireless products, which, among
other things, may have further eroded pricing power. The continued growth of the
use of wireless services, largely due to lower pricing of such services, may
have adversely affected the sales of our calling cards as customers migrate from
using calling cards to wireless services. We expect pricing of wireless services
to continue to decrease, which may result in increased substitution of calling
cards by wireless services and increased pricing pressure on our calling cards.
In our wholesale markets as well, we have generally had to pass along portions
of our per-minute cost savings to our customers in the form of lower prices.
These trends have impacted our telecom businesses, and as a result, we have
generally experienced declines in both our revenues and overall per-minute price
realizations. At times, though, we have chosen to raise prices, particularly
within our calling card business, in an effort to increase per-minute price
realizations, which generally results in a negative impact on minute volumes,
thereby reducing revenues.




We
believe that recent immigration trends in the United States may be decreasing
our potential customer base. Since immigrants are a target customer base for our
prepaid calling card business, their reduced number may have adversely affected
our revenues and profitability in that business. If these immigration trends
continue or accelerate, our calling card revenues and profitability may continue
to be adversely affected.




24
 Table of Contents




520
Broad Street Building




In the
fourth quarter of fiscal 2009, we consolidated our operations in Newark, New
Jersey into considerably less office space that we are leasing at 550 Broad
Street. We will remain at 550 Broad Street on an interim basis while evaluating
other long term relocation options. At October 31, 2009, the carrying value
of the land, building and improvements that we own at 520 Broad Street, Newark,
New Jersey was $49.3 million and the mortgage payable balance was $25.5 million.
At October 31, 2009, we evaluated the recoverability of the land, building and
improvements at 520 Broad Street and determined that the carrying value was
recoverable. We are assessing a range of options as to the future use of 520
Broad Street, some of which could result in a loss from a reduction in the
carrying value of the land, building and improvements and such loss could be
material.




Critical
Accounting Policies




Our
condensed consolidated financial statements and accompanying notes are prepared
in accordance with accounting principles generally accepted in the United States
of America, or U.S. GAAP. Our significant accounting policies are described in
Note 1 to the consolidated financial statements included in our Annual Report on
Form 10-K for fiscal 2009. The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses as well as the disclosure of
contingent assets and liabilities. Critical accounting policies are those that
require application of management’s most subjective or complex judgments, often
as a result of matters that are inherently uncertain and may change in
subsequent periods. Our critical accounting policies include those related to
the allowance for doubtful accounts, goodwill, valuation of long-lived and
intangible assets, income and other taxes and regulatory agency fees, and
contingent liabilities. Management bases its estimates and judgments on
historical experience and other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. For additional discussion of our critical
accounting policies, see our Management’s Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K
for fiscal 2009.




Results
of Operations




Three
Months Ended October 31, 2009 Compared to Three Months Ended October 31,
2008




We
evaluate the performance of our operating business segments based primarily on
income (loss) from operations. Accordingly, the income and expense line items
below income (loss) from operations are only included in our discussion of the
consolidated results of operations.




Consolidated




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            
            %(in
      millions)RevenuesIDT
      Telecom
            
            $
            285.6
            
            
            $
            335.5
            
            
            $
            (49.9
            )
            
            
            (14.9
            )%IDT
      Energy
            
            
            40.3
            
            
            
            67.2
            
            
            
            (26.9
            )
            
            
            (40.0
            )Alternative
      Energy
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —All
      Other
            
            
            1.4
            
            
            
            1.1
            
            
            
            0.3
            
            
            
            34.3Total revenues
            
            $
            327.3
            
            
            $
            403.8
            
            
            $
            (76.5
            )
            
            
            (18.9
            )%





Revenues. The decrease
in IDT Telecom revenues in the three months ended October 31, 2009 compared to
the similar period in fiscal 2009 resulted from revenue declines in both of the
IDT Telecom segments. IDT Telecom minutes of use (excluding minutes related to
our Consumer Phone Services segment, as the portion of such minute traffic
carried in our network is insignificant) declined 5.8% from 5.08 billion in the
three months ended October 31, 2008 to 4.78 billion in the three months ended
October 31, 2009. The decrease in IDT Energy revenues in the three months ended
October 31, 2009 compared to the similar period in fiscal 2009 was primarily the
result of lower average rates charged to customers and, to a lesser degree, to
lower consumption. As of October 31, 2009, IDT Energy’s customer base consisted
of approximately 372,000 meters compared to 392,000 meters as of October 31,
2008.




25
 Table of Contents
  Three months ended
                    October
      31,
                  
                  
                  Change2009
                  
                  
                  2008
                  
                  
                  $
                  
                  
                  %(in
      millions)Costs and expensesDirect
      cost of revenues
                  
                  $
                  258.2
                  
                  
                  $
                  312.9
                  
                  
                  $
                  (54.7
                  )
                  
                  
                  (17.5
                  )%Selling,
      general and administrative
                  
                  
                  57.1
                  
                  
                  
                  85.6
                  
                  
                  
                  (28.5
                  )
                  
                  
                  (33.3
                  )Depreciation
      and amortization
                  
                  
                  9.4
                  
                  
                  
                  12.9
                  
                  
                  
                  (3.5
                  )
                  
                  
                  (27.1
                  )Bad
      debt
                  
                  
                  0.4
                  
                  
                  
                  1.6
                  
                  
                  
                  (1.2
                  )
                  
                  
                  (72.6
                  )
 Research
      and development
              
              
              2.1
              
              
              
              1.6
              
              
              
              0.5
              
              
              
              28.3Restructuring
      and impairment charges
              
              
              —
              
              
              
              1.2
              
              
              
              (1.2
              )
              
              
              (103.4
              )Total costs and expenses
              
              $
              327.2
              
              
              $
              415.8
              
              
              $
              (88.6
              )
              
              
              (21.3
              )%




Direct Cost of
Revenues. The decrease in direct cost of revenues in the three
months ended October 31, 2009 compared to the similar period in fiscal 2009 was
due to the decline in direct cost of revenues of IDT Telecom and IDT Energy. The
decrease in IDT Telecom’s direct cost of revenues reflects the decline in IDT
Telecom’s revenues as well as reductions in connectivity costs. The decrease in
IDT Energy’s direct cost of revenues was primarily due to significant decreases
in the average unit costs of electricity and natural gas. Overall gross margin
decreased from 22.5% in the three months ended October 31, 2008 to 21.1% in the
three months ended October 31, 2009 due to the decline in gross margins in IDT
Telecom partially offset by an increase in gross margin in IDT
Energy.




Selling, General and
Administrative. The decrease in selling, general and administrative
expenses in the three months ended October 31, 2009 compared to the similar
period in fiscal 2009 was due to reductions in the selling, general and
administrative expenses of IDT Telecom, corporate and IDT Energy. These
reductions were largely due to our cost savings program and reductions in force
instituted in fiscal 2008 and fiscal 2009. We successfully executed the majority
of our cost-cutting initiatives in fiscal 2009, such that our current level of
selling, general and administrative expenses offer comparatively modest
opportunities for additional reductions.




The
reduction in IDT Telecom’s selling, general and administrative expenses was
primarily due to significant reductions in headcount and compensation, as well
as in legal services and facilities costs. Corporate general and administrative
expenses decreased primarily due to decreases in payroll and related expenses,
legal fees, consulting fees and other professional fees. IDT Energy’s selling,
general and administrative expenses decreased due primarily to decreases in
customer acquisition costs, compensation expense and billing related fees. As a
percentage of total revenue from continuing operations, selling, general and
administrative expenses decreased from 21.2% in the three months ended October
31, 2008 to 17.4% in the three months ended October 31, 2009 as selling, general
and administrative expenses decreased at a faster rate than total
revenues.




Stock-based
compensation expense included in selling, general and administrative expenses,
primarily relating to the vesting of restricted stock and stock option grants,
was $1.2 million in the three months ended October 31, 2009 compared to $1.3
million in the three months ended October 31, 2008.






On
October 21, 2009, upon the retirement of Mr. James A. Courter as
our Chief Executive Officer, Mr. Courter surrendered options to purchase an
aggregate of 0.9 million shares of our Class B common stock (which
constituted all of such options held by Mr. Courter) and received a grant
of 0.3 million restricted shares of our Class B common stock. All of the
restricted shares were vested on the date of grant. For a period of five years
from the grant date, and subject to certain conditions and adjustments for
certain changes in our capitalization or the capitalization of our subsidiary,
Genie Energy Corporation, 0.2 million of the shares of our Class B common
stock will be convertible, at the option of Mr. Courter, into the number of
shares of Genie Energy Corporation equal to 1% of the outstanding equity of
Genie Energy Corporation as of Mr. Courter’s retirement date. Genie Energy
Corporation was organized in August 2009 and will be comprised of our Genie
Energy division. In the three months ended October 31, 2009, we recognized $0.6
million of stock-based compensation as a result of the grant of the restricted
stock.




On
October 31, 2008, we entered into an Amended and Restated Employment
Agreement with Mr. Howard S. Jonas, our Chairman of the Board and as
of October 22, 2009 our Chief Executive Officer. Pursuant to this agreement
(i) the term of Mr. Jonas’ employment with us runs until
December 31, 2013 and (ii) Mr. Jonas was granted 1.2 million
restricted shares of our Class B common stock and 0.9 million restricted
shares of our common stock in lieu of a cash base salary beginning
January 1, 2009 through December 31, 2013. The restricted shares vest
in different installments throughout the term of Mr. Jonas’ employment as
delineated in the agreement, and all of the restricted shares paid to
Mr. Jonas under the agreement automatically vest in the event of (i) a
change in control of the Company; (ii) Mr. Jonas’ death; or
(iii) if Mr. Jonas is terminated without cause or if he terminates his
employment for good reason as defined in the agreement. A pro rata portion of
the restricted shares will vest in the event of termination for cause. Total
unrecognized compensation cost on the grant date was $5.5 million. The
unrecognized compensation cost is expected to be recognized over the vesting
period from January 1, 2009 through December 31, 2013. The Company
recognized $0.2 million and nil of the compensation cost related to this
agreement in the three months ended October 31, 2009 and 2008,
respectively.




On
November 5, 2008, we amended Mr. Courter’s employment agreement.
Pursuant to the amendment, Mr. Courter was granted 0.4 million
restricted shares of our Class B common stock in lieu of a cash base salary from
January 1, 2009 until October 21, 2009. The restricted shares vested
on October 21, 2009, the last day of the term under the amended employment
agreement. Total





26
 Table of Contents
 
 unrecognized
compensation cost on the grant date was $0.8 million. We recognized $0.2 million
and nil of the compensation cost related to this agreement in the three months
ended October 31, 2009 and 2008, respectively.




Depreciation and
Amortization. The decrease in depreciation and amortization expense in
the three months ended October 31, 2009 compared to the similar period in fiscal
2009 was primarily due to IDT Telecom property, plant and equipment becoming
fully depreciated and a decrease in capital expenditures in recent
periods.




Bad Debt Expense. Bad debt
expense decreased in the three months ended October 31, 2009 compared to the
similar period in fiscal 2009 due to decreases in IDT Telecom and IDT Energy’s
bad debt expense. The decrease in IDT Telecom’s bad debt expense was primarily
due to the decrease in revenues. The decrease in IDT Energy’s bad debt expense
was due primarily to the transition of a significant portion of IDT Energy’s
unguaranteed receivables to a purchase of receivables program in the third
quarter of fiscal 2009.




Research and Development.Research and development expenses consist of the following:




Three months ended
              October
      31,2009
            
            
            2008(in
      millions)Telecom Platform Services Segment:Fabrix
      T.V., Ltd.
            
            $
            0.9
            
            
            $
            0.8Alternative Energy Segment:Israel
      Energy Initiatives, Ltd.
            
            
            1.2
            
            
            
            0.1AMSO
            
            
            —
            
            
            
            0.7Total research and development expenses
            
            $
            2.1
            
            
            $
            1.6





Fabrix
T.V., Ltd. is our majority-owned venture developing a video content delivery and
storage platform. In March 2008, we formed IEI which holds an exclusive Shale
Oil Exploration and Production License awarded in July 2008 by the Israeli
Ministry of National Infrastructure. The three-year license (which can be
extended to a total of seven years) covers approximately 238 square kilometers
in the south of the Shfela region in Israel, and grants IEI an exclusive right
to demonstrate in-situ technologies for potential commercial shale oil
production. Under the terms of the license, IEI is to conduct a geological
appraisal study across the license area, characterize the resource and select a
location for a pilot plant in which it will demonstrate its in-situ technology.
Assuming IEI successfully demonstrates a commercially viable technology, IEI
intends to apply for a long-term commercial lease from the Israeli government
and build a commercial facility. Under the Israeli petroleum law, long term
leases are typically for a term of 30 years, with a possible extension for an
additional 20 years. In March 2009, Total acquired a 50% interest in AMSO,
LLC in exchange for cash paid to us of $3.2 million and Total’s commitment to
fund the majority of AMSO, LLC’s research, development and demonstration
expenditures. AMSO no longer consolidates AMSO, LLC as of the closing of the
transaction with Total, instead, AMSO accounts for its 50% ownership interest in
AMSO, LLC using the equity method. AMSO’s equity in the net loss of AMSO, LLC is
included in “Other expense, net” in the consolidated statement of operations.
AMSO, LLC is utilizing a team of experienced experts in various fields to
conduct its research, development and demonstration activities. The team has
conducted considerable site characterization, which includes exploration and
ground water monitoring wells, coring, logging, and other analysis to further
explore, understand and characterize the shale oil resources in its RD&D
lease area.




Restructuring and Impairment
Charges. Restructuring and impairment charges in the three months
ended October 31, 2009 included a reversal of impairment charges of $0.1 million
related to our building in San Juan, Puerto Rico that was sold in
October 2009. Restructuring and impairment charges in the three months
ended October 31, 2008 consisted of severance related to a company-wide cost
savings program and reduction in force, net of the reversal of accrued severance
of $2.6 million as a result of modifications to retention and severance
agreements with certain IDT Telecom employees. As of October 31, 2009, these
programs resulted in the termination of approximately 1,580 employees since the
third quarter of fiscal 2006. As of October 31, 2009, we had a total of
approximately 1,220 employees, of which approximately 860 are located in the
United States and approximately 360 are located at our international
operations.






27
 Table of Contents
 The
following table summarizes the changes in the reserve balances related to our
restructuring activities (substantially all of which relates to workforce
reductions):
 Balance at
                  July 31,
                  2009
                
                
                Charged to
                  Expense
                
                
                Payments
                
                
                Non-cash
                  Charges
      and Other
                
                
                Balance at
                  October 31,
                  2009(in
      millions)IDT Telecom
                
                $
                3.0
                
                
                $
                —
                
                
                $
                (1.6
                )
                
                $
                (0.1
                )
                
                $
                1.3All Other
                
                
                —
                
                
                
                (0.1
                )
                
                
                0.1
                
                
                
                —
                
                
                
                —Corporate
                
                
                3.6
                
                
                
                0.1
                
                
                
                (1.1
                )
                
                
                0.1
                
                
                
                2.7
 Total
              
              $
              6.6
              
              
              $
              —
              
              
              $
              (2.6
              )
              
              $
              —
              
              
              $
              4.0







Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            
            %(in
      millions)Income (loss) from operations
            
            $
            0.1
            
            
            $
            (12.1
            )
            
            $
            12.2
            
            
            
            101.3
            %Interest
      (expense) income, net
            
            
            (1.3
            )
            
            
            0.4
            
            
            
            (1.7
            )
            
            
            (472.1
            )Other
      expense, net
            
            
            (1.2
            )
            
            
            (21.0
            )
            
            
            19.8
            
            
            
            94.3Provision
      for income taxes
            
            
            (1.2
            )
            
            
            (2.8
            )
            
            
            1.6
            
            
            
            58.9Loss from continuing operations
            
            
            (3.6
            )
            
            
            (35.5
            )
            
            
            31.9
            
            
            
            90.1Loss
      from discontinued operations
            
            
            (0.1
            )
            
            
            (2.1
            )
            
            
            2.0
            
            
            
            93.4Net loss
            
            
            (3.7
            )
            
            
            (37.6
            )
            
            
            33.9
            
            
            
            90.3Net loss attributable to noncontrolling interests
            
            
            0.2
            
            
            
            0.3
            
            
            
            (0.1
            )
            
            
            (51.6
            )Net loss attributable to IDT Corporation
            
            $
            (3.5
            )
            
            $
            (37.3
            )
            
            $
            33.8
            
            
            
            90.7
            %





Interest (Expense) Income,
net. The decrease in net interest in the three months ended October
31, 2009 compared to the similar period in fiscal 2009 was primarily due to a
decrease in interest income as a result of lower interest bearing cash, cash
equivalents and marketable securities balances, as well as finance charges of
$0.3 million in the three months ended October 31, 2009 from the Preferred
Supplier Agreement between IDT Energy and BP Energy Company and BP Corporation
North America Inc. (collectively BP) dated as of June 29, 2009, pursuant to
which BP is IDT Energy’s preferred provider of electricity and natural gas in
New York State.




Other Expense,
net. Other expense, net consists of the following:




Three months ended
              October
      31,2009
            
            
            2008(in
      millions)Other than temporary decline in value of marketable
    securities
            
            $
            —
            
            
            $
            (6.3
            )Losses on investments
            
            
            (0.9
            )
            
            
            (13.1
            )Equity in net loss of AMSO, LLC
            
            
            (0.4
            )
            
            
            —Other
            
            
            0.1
            
            
            
            (1.6
            )Total
      other expense, net
            
            $
            (1.2
            )
            
            $
            (21.0
            )





In the
three months ended October 31, 2008, other expense, net included other than
temporary decline in value of $6.3 million related to auction rate securities.
On September 23, 2008, we sold a 10% ownership interest in Zedge to Shaman
II, L.P. for cash of $1.0 million. One of the limited partners in Shaman II,
L.P. was a former employee of ours. We recorded the effect of changes in our
ownership interest resulting from the issuance of equity by one of our
subsidiaries in the condensed consolidated statement of operations until August
1, 2009, the date we adopted the accounting standard relating to noncontrolling
interests. Accordingly, in the three months ended October 31, 2008, we recorded
a gain of $0.3 million on the sale of Zedge stock.




Income Taxes. Income tax
expense decreased in the three months ended October 31, 2009 compared to the
similar period in fiscal 2009 due primarily to a decrease in interest on income
taxes, which is classified as a component of income tax expense, partially
offset by an increase in state and local income tax expense. Interest on income
taxes was $0.3 million and $2.3 million in the three months ended October 31,
2009 and 2008, respectively. State and local income taxes increased as a result
of an increase in IDT Energy’s tax provision. Our foreign income tax expense
results from income generated by our foreign subsidiaries that cannot be offset
against losses generated in the United States.




We
currently remain subject to examinations of our income tax returns as follows:
U.S. federal tax returns for fiscal 2005 to fiscal 2009, state and local tax
returns generally for fiscal 2001 to fiscal 2009 and foreign tax returns
generally for fiscal 2002 to fiscal 2009. The Internal Revenue Service is
currently conducting an audit of our U.S. federal tax returns for fiscal years
2006, 2007 and 2008. Our management believes that we have adequately reserved
for all tax positions, however amounts asserted by taxing authorities





28
 Table of Contents
 
 could be
greater than the accrued amounts. Accordingly, additional tax provisions may be
recorded in the future as revised estimates are made or the underlying matters
are settled or resolved.




IDT
Telecom—Telecom Platform Services and Consumer Phone Services
Segments




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions, except revenue per minute)RevenuesTelecom
      Platform Services
            
            $
            275.2
            
            
            $
            320.1
            
            
            $
            (44.9
            )
            
            
            (14.0
            )%Consumer
      Phone Services
            
            
            10.4
            
            
            
            15.4
            
            
            
            (5.0
            )
            
            
            (32.7
            )Total
      revenues
            
            $
            285.6
            
            
            $
            335.5
            
            
            $
            (49.9
            )
            
            
            (14.9
            )%Minutes of useRetail
      calling cards
            
            
            2,355
            
            
            
            2,672
            
            
            
            (317
            )
            
            
            (11.9
            )%Wholesale
      carrier
            
            
            2,428
            
            
            
            2,408
            
            
            
            20
            
            
            
            0.8Total
      minutes of use
            
            
            4,783
            
            
            
            5,080
            
            
            
            (297
            )
            
            
            (5.8
            )%Average revenue per minuteRetail
      calling cards
            
            $
            0.0685
            
            
            $
            0.0711
            
            
            $
            (0.0026
            )
            
            
            (3.6
            )%Wholesale
      carrier
            
            
            0.0469
            
            
            
            0.0540
            
            
            
            (0.0071
            )
            
            
            (13.3
            )Total
      average revenue per minute
            
            $
            0.0575
            
            
            $
            0.0630
            
            
            $
            (0.0055
            )
            
            
            (8.7
            )%





Revenues. We experienced
revenue declines in the three months ended October 31, 2009 compared to the
similar period in fiscal 2009 in both of the IDT Telecom segments. As a
percentage of IDT Telecom’s total revenues from continuing operations, Telecom
Platform Services revenues increased from 95.4% in the three months ended
October 31, 2008 to 96.4% in the three months ended October 31, 2009, and
Consumer Phone Services revenues decreased from 4.6% in the three months ended
October 31, 2008 to 3.6% in the three months ended October 31,
2009.




Telecom
Platform Services revenues declined 14.0% in the three months ended October 31,
2009 compared to the similar period in fiscal 2009 primarily due lower revenues
in our global retail and wholesale carrier businesses. Approximately $3.2
million of the decrease in Telecom Platform Services revenues in the three
months ended October 31, 2009 compared to the similar period in fiscal 2009 was
due to changes in foreign currency exchange rates. Global retail revenues fell
15.4% primarily due to continued competitive pressures. In addition, we believe
that there may be a gradual shift in demand industry-wide away from calling
cards and into wireless products. Following our acquisition of the remaining 49%
interest in UTA, our calling card distribution subsidiary in the fourth quarter
of fiscal 2009, we focused on marketing and distributing a newly launched
calling card brand for the U.S. market. This initiative helped to slow the rate
of decline in U.S. calling card revenues, but it contributed to the reductions
in average revenue per minute and gross margins in the three months ended
October 31, 2009 compared to the similar period in fiscal 2009. Partially
offsetting the decline in calling card revenue, international mobile top-up, or
IMTU, experienced strong growth. IMTU enables customers to transfer minutes
purchased in the U.S. directly to accounts held by friends and family at
participating wireless carriers overseas. We are continuing to expand the IMTU
product line in the U.S., and we expect to aggressively grow this business and
add new destinations in the coming year. Europe and Asia retail revenue
increased on the strength of aggressive pricing and new calling card offerings,
while retail revenues in South America declined. We invested in our calling card
businesses in Europe and in the U.S. in an attempt to increase our worldwide
minutes of use which has the additional benefit of stabilizing or reducing our
wholesale carrier average termination cost per minute. Despite slight growth in
wholesale carrier minutes of use in the three months ended October 31, 2009
compared to the similar period in fiscal 2009, wholesale carrier revenue
declined 12.5% as competition in this market continues to
intensify.




Total
minutes of use for Telecom Platform Services declined by 5.8% in the three
months ended October 31, 2009 compared to the similar period in fiscal 2009.
Minutes of use relating to our Consumer Phone Services segment is not tracked as
a meaningful business metric as the domestic traffic generated by this segment
is not carried on our network, and the international traffic generated by this
segment, though carried on our own network, is relatively insignificant. Within
Telecom Platform Services, minutes of use relating to wholesale carrier
activities increased 0.8% as a result of lower prices that generated more
traffic to our network. Minutes of use from our retail activities declined 11.9%
due to continued weakness in our calling card businesses in the United States
and South America, partially offset by increases in Europe and
Asia.




Average
revenue per minute is the average price realization we recognize on the minutes
we sell within our Telecom Platform Services segment. Average revenue per minute
declined 8.7% in the three months ended October 31, 2009 compared to the similar
period in fiscal 2009. Average revenue per minute in our wholesale carrier
business decreased 13.3% due primarily to continued aggressive
competition.




29
 Table of Contents




Consumer
Phone Services revenues declined 32.7% in the three months ended October 31,
2009 compared to the similar period in fiscal 2009 as we continue to fully
harvest the business. This strategy has been in effect since calendar 2005, when
the FCC decided to terminate the UNE-P pricing regime, which resulted in
significantly inferior economics for this business. The customer base for our
bundled, unlimited local and long distance services business was approximately
25,800 as of October 31, 2009 compared to 40,700 as of October 31, 2008. We
currently offer local service in the following 11 states: New York, New Jersey,
Pennsylvania, Maryland, Delaware, Massachusetts, New Hampshire, West Virginia,
Maine, Rhode Island and California. In addition, the customer base for our long
distance-only services was approximately 92,200 as of October 31, 2009 compared
to 125,300 as of October 31, 2008.




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions, except cost per minute)Direct cost of revenuesTelecom
      Platform Services
            
            $
            227.9
            
            
            $
            258.1
            
            
            $
            (30.2
            )
            
            
            (11.7
            )%Consumer
      Phone Services
            
            
            4.3
            
            
            
            7.3
            
            
            
            (3.0
            )
            
            
            (40.6
            )Total
      direct cost of revenues
            
            $
            232.2
            
            
            $
            265.4
            
            
            $
            (33.2
            )
            
            
            (12.5
            )%Average termination cost per minuteRetail
      calling cards
            
            $
            0.0533
            
            
            $
            0.0526
            
            
            $
            0.0007
            
            
            
            1.3
            %Wholesale
      carrier
            
            
            0.0421
            
            
            
            0.0488
            
            
            
            (0.0067
            )
            
            
            (13.6
            )Total
      average termination cost per minute
            
            $
            0.0476
            
            
            $
            0.0508
            
            
            $
            (0.0032
            )
            
            
            (6.2
            )%





Direct Cost of Revenues.
Direct cost of revenues of IDT Telecom decreased in the three months ended
October 31, 2009 compared to the similar period in fiscal 2009 primarily as a
result of the decline in minutes of use volume, a lower average termination cost
per minute and a declining customer base in our Consumer Phone Services segment.
Our average termination cost per minute represents the average direct cost for
minutes purchased in order to terminate calls in our Telecom Platform Services
segment. Approximately $2.6 million of the decrease in Telecom Platform
Services’ direct cost of revenues in the three months ended October 31, 2009
compared to the similar period in fiscal 2009 was due to changes in foreign
currency exchange rates. In addition, Telecom Platform Services direct cost of
revenues decreased due to reductions in connectivity costs. In May 2009, we
completed the migration of our network from dedicated capacity time-division
multiplexing (TDM) circuits to burstable Internet protocol circuits, which
utilize connectivity capacity more efficiently and results in lower overall
cost. Direct cost of revenues in our Consumer Phone Services segment in the
three months ended October 31, 2009 were also reduced by the reversal of $0.6
million that was recorded in a prior period.




Three months ended
              October
      31,2009
            
            
            2008
            
            
            ChangeGross margin percentageTelecom
      Platform Services
            
            
            17.2
            %
            
            
            19.4
            %
            
            
            (2.2
            )%Consumer
      Phone Services
            
            
            58.1
            
            
            
            52.4
            
            
            
            5.7Total gross margin percentage
            
            
            18.7
            %
            
            
            20.9
            %
            
            
            (2.2
            )%





Gross Margins. Gross margins
in our Telecom Platform Services segment decreased in the three months ended
October 31, 2009 compared to the similar period in fiscal 2009. The investments
in our new calling card brand in the U.S. and in our aggressively priced calling
cards in Europe, as well as the growth in IMTU sales, which is a relatively low
margin business, were largely responsible for this decline.




Gross
margins in our Consumer Phone Services segment increased in the three months
ended October 31, 2009 compared to the similar period in fiscal 2009 primarily
due to the reversal of direct cost of revenues of $0.6 million that was recorded
in a prior period, which accounted for primarily all of the gross margin
percentage increase.




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)Selling, general and administrative expensesTelecom
      Platform Services
            
            $
            42.6
            
            
            $
            57.8
            
            
            $
            (15.2
            )
            
            
            (26.2
            )%Consumer
      Phone Services
            
            
            1.9
            
            
            
            3.3
            
            
            
            (1.4
            )
            
            
            (42.7
            )Total selling, general and administrative expenses
            
            $
            44.5
            
            
            $
            61.1
            
            
            $
            (16.6
            )
            
            
            (27.1
            )%




30
 Table of Contents




Selling, General and
Administrative. The decrease in selling, general and administrative
expenses in IDT Telecom in the three months ended October 31, 2009 compared to
the similar period in fiscal 2009 was primarily due to significant reductions in
headcount and compensation, as well as in legal services and facilities costs.
Compensation and benefit costs are expected to decline in fiscal 2010 compared
to prior periods as a result of the headcount reductions and other initiatives
instituted in fiscal 2008 and fiscal 2009. Selling, general and administrative
expenses in Consumer Phone Services decreased in the three months ended October
31, 2009 compared to the similar period in fiscal 2009 as these costs are being
continuously adjusted to the needs of the declining business. As a percentage of
IDT Telecom’s total revenues from continuing operations, selling, general and
administrative expenses decreased from 18.2% in the three months ended October
31, 2008 to 15.6% in the three months ended October 31, 2009 as IDT Telecom’s
selling, general and administrative expenses decreased at a faster rate than its
revenues.




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)Depreciation and amortizationTelecom
      Platform Services
            
            $
            8.4
            
            
            $
            11.1
            
            
            $
            (2.7
            )
            
            
            (24.4
            )%Consumer
      Phone Services
            
            
            —
            
            
            
            0.3
            
            
            
            (0.3
            )
            
            
            (90.2
            )Total depreciation and amortization
            
            $
            8.4
            
            
            $
            11.4
            
            
            $
            (3.0
            )
            
            
            (26.3
            )%





Depreciation and
Amortization.  The decrease in depreciation and amortization
expense in the three months ended October 31, 2009 compared to the similar
period in fiscal 2009 was primarily due to property, plant and equipment
becoming fully depreciated and a decrease in capital expenditures in recent
periods.




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)Bad debt expenseTelecom
      Platform Services
            
            $
            0.2
            
            
            $
            2.4
            
            
            $
            (2.2
            )
            
            
            (90.1
            )%Consumer
      Phone Services
            
            
            0.2
            
            
            
            (1.2
            )
            
            
            1.4
            
            
            
            116.1Total bad debt expense
            
            $
            0.4
            
            
            $
            1.2
            
            
            $
            (0.8
            )
            
            
            (65.6
            )%





Bad Debt Expense.The
decrease in bad debt expense in our Telecom Platform Services segment in the
three months ended October 31, 2009 compared to the similar period in fiscal
2009 was primarily due to the decrease in revenues. The increase in bad debt
expense in our Consumer Phone Services segment in the three months ended October
31, 2009 compared to the similar period in fiscal 2009 was primarily due to
evaluations of the outstanding receivables in the three months ended October 31,
2008 that resulted in unusually large reductions to the provisions.




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)Research and development expensesTelecom
      Platform Services
            
            $
            0.9
            
            
            $
            0.8
            
            
            $
            0.1
            
            
            
            2.5
            %Consumer
      Phone Services
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total research and development expenses
            
            $
            0.9
            
            
            $
            0.8
            
            
            $
            0.1
            
            
            
            2.5
            %





Research and Development.Research and development expenses in our Telecom Platform Services
segment in the three months ended October 31, 2009 and 2008 were related to
Fabrix T.V., Ltd., our majority-owned venture developing a video content
delivery and storage platform.




Three months ended
                October
      31,
              
              
              Change2009
              
              
              2008
              
              
              $
              
              
              %(in
      millions)Restructuring chargesTelecom
      Platform Services
              
              $
              —
              
              
              $
              (0.8
              )
              
              $
              (0.8
              )
              
              
              (92.3
              )%Consumer
      Phone Services
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total restructuring charges
              
              $
              —
              
              
              $
              (0.8
              )
              
              $
              (0.8
              )
              
              
              (92.3
              )%








31
 Table of Contents





Restructuring Charges. The
restructuring charges in the three months ended October 31, 2008 are net of the
reversal of accrued severance of $2.6 million as a result of modifications to
retention and severance agreements with certain employees. The restructuring
charges in the three months ended October 31, 2008 consisted of severance
related to a company-wide cost savings program and reduction in
force.




Three months ended
                October
      31,
              
              
              Change2009
              
              
              2008
              
              
              $
              
              
              %(in
      millions)(Loss) income from operationsTelecom
      Platform Services
              
              $
              (4.8
              )
              
              $
              (9.3
              )
              
              $
              4.5
              
              
              
              48.6
              %Consumer
      Phone Services
              
              
              3.9
              
              
              
              5.6
              
              
              
              (1.7
              )
              
              
              (30.6
              )Total loss from operations
              
              $
              (0.9
              )
              
              $
              (3.7
              )
              
              $
              2.8
              
              
              
              75.6
              %




IDT
Energy Segment




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)Revenues
            
            $
            40.3
            
            
            $
            67.2
            
            
            $
            (26.9
            )
            
            
            (40.0
            )%Direct
      cost of revenues
            
            
            25.7
            
            
            
            47.0
            
            
            
            (21.3
            )
            
            
            (45.3
            )Selling,
      general and administrative
            
            
            4.1
            
            
            
            8.7
            
            
            
            (4.6
            )
            
            
            (52.8
            )Bad
      debt expense
            
            
            —
            
            
            
            0.4
            
            
            
            (0.4
            )
            
            
            (97.6
            )Income from operations
            
            $
            10.5
            
            
            $
            11.1
            
            
            $
            (0.6
            )
            
            
            (5.5
            )%





In fiscal
2009, IDT Energy capitalized on unusually favorable energy market conditions to
generate $45.4 million in income from operations. However, as described below,
IDT Energy’s rate of customer acquisition slowed significantly in the fourth
quarter of fiscal 2009. As a result, the amount of income from operations in
fiscal 2009 is not a reliable indicator of future performance.




Revenues. IDT Energy’s
revenues consisted of electricity sales of $32.8 million in the three months
ended October 31, 2009 compared to $53.9 million in the same period in fiscal
2009, and natural gas sales of $7.5 million in the three months ended October
31, 2009 compared to $13.3 million in the same period in fiscal 2009. IDT
Energy’s revenues are impacted by, among other things, the weather and the
seasons, with natural gas revenues typically increasing in the second and third
fiscal quarters due to increased gas heat use, and electricity revenues
typically increasing in the fourth and first fiscal quarters due to increased
air conditioning use.




IDT
Energy’s electricity and natural gas revenues declined in the three months ended
October 31, 2009 compared to the same period in fiscal 2009 primarily reflecting
declines in the average rates charged to customers and, to a lesser extent, a
decline in consumption. Electric rates declined 37.8% and natural gas rates
declined 41.1%, reflecting declines in the underlying commodity costs. Both
electric and natural gas consumption declined slightly compared to the same
period in fiscal 2009.




As of
October 31, 2009, IDT Energy’s customer base consisted of approximately 372,000
meters (213,000 electric and 159,000 natural gas) compared to 392,000 meters
(223,000 electric and 169,000 natural gas) as of October 31, 2008.




IDT
Energy reorganized its sales teams and restructured its marketing approach
during the fourth quarter of fiscal 2009 to create a significantly smaller, but
better trained external sales force. As a result of this initiative, IDT Energy
expects to reduce customer churn and focus acquisition efforts on higher value
generating customers. This re-programming effort slowed the pace of new meter
acquisitions significantly during the fourth quarter of fiscal 2009 and the
first quarter of fiscal 2010, resulting in gross meter acquisitions of 13,600 in
the three months ended October 31, 2009 compared to 92,100 in the same period in
fiscal 2009. Reduced prices for electricity and natural gas in the three months
ended October 31, 2009 also contributed to the reduction in new meter
acquisitions since lower prices tend to decrease the productivity of IDT
Energy’s sales and marketing efforts.




New meter
acquisitions were more than offset by customer churn in the three months ended
October 31, 2009, which resulted in a net loss of approximately 25,000 meters.
The rate of churn fell significantly compared to the same period in fiscal 2009,
from 6.1% in the three months ended October 31, 2008 to 2.7% in the three months
ended October 31, 2009 as a result of enhanced customer acquisition procedures
and the lower churn rates that typically accompany relatively low energy
prices.




IDT
Energy continues to expand its customer base opportunistically in New York with
the goal of acquiring profitable customers in low-risk markets; more
specifically in regions where receivables are guaranteed under purchase of
receivables (POR) programs, billing is handled by the utility, and commodity
procurement can be effectuated on a real-time market basis. IDT Energy also
regularly monitors other deregulated or deregulating markets to determine if
they are appropriate for entry. IDT Energy’s





32
 Table of Contents
 
 management
is encouraged by positive steps recently adopted by regulatory agencies and
utilities in several other states to deregulate energy markets and is presently
working on  various options for geographic
expansion.




Direct Cost of Revenues. IDT
Energy’s direct cost of revenues consisted of electricity cost of $20.1 million
in the three months ended October 31, 2009 compared to $34.8 million in the same
period in fiscal 2009, and cost of natural gas of $5.6 million in the three
months ended October 31, 2009 compared to $12.2 million in the same period in
fiscal 2009. Direct cost of revenues for electricity and natural gas decreased
in the three months ended October 31, 2009 compared to the same period in fiscal
2009 primarily due to significant decreases in the average unit
costs.




Gross
margins in IDT Energy increased to 36.3% in the three months ended October 31,
2009 compared to 30.1% in the comparable period in fiscal 2009. Comprising these
figures were gross margins on electricity sales in the three months ended
October 31, 2009 of 38.8% compared to 35.4% in the comparable period in fiscal
2009 and gross margins on natural gas sales in the three months ended October
31, 2009 of 25.4% compared to 8.7% in the comparable period in fiscal 2009. The
gross margin increases in the three months ended October 31, 2009 compared to
the same period in fiscal 2009 occurred primarily because our average unit cost
of electricity and natural gas decreased due to continuing favorable market
conditions. We do not believe that these levels of gross margins are sustainable
on a consistent basis going forward. However, IDT Energy has been successful in
maintaining strong margins despite fluctuating market conditions over the past
several quarters. IDT Energy plans to continue to target margins per unit that
will achieve income from operations, and plans to take advantage of
opportunities to maximize the margin per unit as they arise.




Selling, General and
Administrative. The decrease in selling, general and administrative
expenses in the three months ended October 31, 2009 as compared to the
comparable period in fiscal 2009 was due primarily to decreases in customer
acquisition costs, compensation expense and billing related fees. Customer
acquisition costs decreased in the three months ended October 31, 2009 as
compared to the comparable period in fiscal 2009 due to the decrease in the
number of new customers acquired as a result of the sales teams’ reorganization
and marketing approach restructuring during the fourth quarter of fiscal 2009
described above. Compensation expense decreased in the three months ended
October 31, 2009 as compared to the comparable period in fiscal 2009 primarily
due to a decrease in bonus expense. The decrease in billing related fees in the
three months ended October 31, 2009 as compared to the comparable period in
fiscal 2009 was a result of decreases in the fees charged by certain utilities
for their POR programs, which reflected the decrease in revenues. As a
percentage of total IDT Energy revenues, selling, general and administrative
expenses decreased from 13.0% in the three months ended October 31, 2008 to
10.2% in the three months ended October 31, 2009 due to the decreases described
above.




Bad Debt Expense. The
decrease in bad debt expense in the three months ended October 31, 2009 as
compared to the comparable period in fiscal 2009 was due primarily to the
transition of a significant portion of IDT Energy’s unguaranteed receivables to
a POR program in the third quarter of fiscal 2009.




Alternative
Energy Segment




Alternative
Energy, which was previously included in All Other, is a reportable business
segment beginning in the first quarter of fiscal 2010. To the extent possible,
comparative historical results have been reclassified and restated as if the
fiscal 2010 business segment structure existed in all periods presented,
although these results may not be indicative of the results which would have
been achieved had the business segment structure been in effect during those
periods.




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)Revenues
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            
            —
            %Direct
      cost of revenues
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Selling,
      general and administrative
            
            
            0.3
            
            
            
            0.1
            
            
            
            0.2
            
            
            
            217.3Research
      and development
            
            
            1.2
            
            
            
            0.8
            
            
            
            0.4
            
            
            
            55.9Loss from operations
            
            $
            (1.5
            )
            
            $
            (0.9
            )
            
            $
            (0.6
            )
            
            
            (70.8
            )%




Research and Development.Research and development expenses consist of the following:




Three months ended
              October
      31,2009
            
            
            2008(in
      millions)Israel Energy Initiatives, Ltd.
            
            $
            1.2
            
            
            $
            0.1AMSO
            
            
            —
            
            
            
            0.7Total research and development expenses
            
            $
            1.2
            
            
            $
            0.8






33
 Table of Contents





In March
2008, we formed IEI which holds an exclusive Shale Oil Exploration and
Production License awarded in July 2008 by the Israeli Ministry of National
Infrastructure. The three-year license (which can be extended to a total of
seven years) covers approximately 238 square kilometers in the south of the
Shfela region in Israel, and grants IEI an exclusive right to demonstrate
in-situ technologies for potential commercial shale oil production. Under the
terms of the license, IEI is to conduct a geological appraisal study across the
license area, characterize the resource and select a location for a pilot plant
in which it will demonstrate its in-situ technology. Assuming IEI successfully
demonstrates a commercially viable technology, IEI intends to apply for a
long-term commercial lease from the Israeli government and build a commercial
facility. Under the Israeli petroleum law, long term leases are typically for a
term of 30 years, with a possible extension for an additional 20
years.




IEI began
the resource appraisal and characterization study in the third quarter of
calendar 2009, and it is estimated that this phase will be finalized in
approximately one year. The resource appraisal is comprised primarily of a
drilling operation conducted in the license area by a local vendor. The resource
appraisal plan includes drilling and coring six wells to depths of over 600
meters. The resource appraisal and characterization study also includes well
logging, analysis of core materials and other geochemical tests, water
monitoring and hydrology tests. The subsequent pilot stage is projected to be
conducted during 2010 and 2011, and commercial viability will be determined
based on the results from the pilot as well as the process to obtain a
commercial lease and all relevant environmental and other
approvals.




In March
2009, Total acquired a 50% interest in AMSO, LLC in exchange for cash paid to us
of $3.2 million and Total’s commitment to fund the majority of AMSO, LLC’s
research, development and demonstration expenditures. AMSO no longer
consolidates AMSO, LLC as of the closing of the transaction with Total, instead,
AMSO accounts for its 50% ownership interest in AMSO, LLC using the equity
method. AMSO’s equity in the net loss of AMSO, LLC is included in “Other
expense, net” in the consolidated statement of operations.




AMSO, LLC
is utilizing a team of experienced experts in various fields to conduct its
research, development and demonstration activities. The team has conducted
considerable site characterization, which includes exploration and ground water
monitoring wells, coring, logging, and other analysis to further explore,
understand and characterize the shale oil resources in its RD&D lease area.
AMSO, LLC intends to conduct a pilot test to confirm the accuracy of several of
the key underlying assumptions of the proposed heating and retorting process. We
currently plan to initiate the pilot test at the end of calendar 2010 or the
beginning of 2011, and are working with outside contractors and consultants to
construct the pilot facilities. In parallel, AMSO, LLC will be developing other
technologies to address carbon management and advanced heating techniques. Upon
successful completion of the pilot heating test, AMSO, LLC expects to design and
implement a larger scale demonstration to further test its process and
operations under commercial conditions, and assess scalability to commercial
levels. Upon completion of a successful demonstration, AMSO, LLC intends to
submit an application to convert the RD&D lease into a commercial
lease.




Corporate




Three months ended
              October
      31,
            
            
            Change2009
            
            
            2008
            
            
            $
            
            
            %(in
      millions)General and administrative expenses
            
            $
            5.5
            
            
            $
            11.1
            
            
            $
            (5.6
            )
            
            
            (49.8
            )%Depreciation and amortization
            
            
            0.3
            
            
            
            0.3
            
            
            
            —
            
            
            
            (12.1
            )Restructuring charges
            
            
            0.1
            
            
            
            1.3
            
            
            
            (1.2
            )
            
            
            (90.6
            )Loss from operations
            
            $
            5.9
            
            
            $
            12.7
            
            
            $
            (6.8
            )
            
            
            (53.1
            )%





Corporate
costs include certain services, such as corporate compensation, consulting fees,
treasury and accounts payable, tax and accounting services, human resources and
payroll, corporate purchasing, corporate governance including Board of
Directors’ fees, internal and external audit, public and investor relations,
corporate insurance, corporate legal, and business development, and other
corporate-related general and administrative expenses, including, among others,
facilities costs, charitable contributions and travel, as well as depreciation
expense on corporate assets. Corporate does not generate any revenues, nor does
it incur any direct cost of revenues.




General and
Administrative. Corporate general and administrative expenses
decreased in the three months ended October 31, 2009 as compared to the similar
period in fiscal 2009 primarily due to decreases in payroll and related
expenses, legal fees, consulting fees and other professional fees, partially
offset by an increase in stock-based compensation expense. As a percentage of
our total consolidated revenues from continuing operations, corporate general
and administrative expenses decreased from 2.7% in the three months ended
October 31, 2008 to 1.7% in the three months ended October 31, 2009 because
corporate general and administrative expenses decreased at a faster rate than
the decrease in our total consolidated revenues from continuing
operations.




34
 Table of Contents




Restructuring
Charges. Restructuring charges in the three months ended October 31,
2008 consisted primarily of severance related to a company-wide cost savings
program and reduction in force.




Liquidity
and Capital Resources




General




Historically,
we have satisfied our cash requirements primarily through a combination of our
existing cash, cash equivalents, proceeds from the sale of businesses, proceeds
from the sales and maturities of marketable securities and investments,
arbitration awards and litigation settlements, and borrowings from third
parties.




As of
October 31, 2009, we had cash, cash equivalents, restricted cash and cash
equivalents and marketable securities of $187.0 million and working capital
(current assets less current liabilities) of $55.9 million. As of October
31, 2009, we also had $11.0 million in pooled investment vehicles, including
hedge funds, of which $2.4 million is included in “Investments-short term” and
$8.6 million is included in “Investments-long-term” in our condensed
consolidated balance sheet.




As of
October 31, 2009, cash and cash equivalents of $15.2 million that serve as
collateral were restricted against letters of credit, and were included in
“Restricted cash and cash equivalents” in our condensed consolidated balance
sheet. Also, as of October 31, 2009, marketable securities of $5.1 million were
restricted primarily against letters of credit and were included in “Marketable
securities” in our condensed consolidated balance sheet. The letters of credit
outstanding at October 31, 2009 were collateral to secure equipment financing,
mortgage repayments on various buildings and IDT Energy’s purchases of natural
gas, electric capacity, energy and ancillary services.




As of
October 31, 2009, “Cash and cash equivalents” in our condensed consolidated
balance sheet included approximately $10 million that was held pursuant to
regulatory requirements related to IDT Financial Services, our European prepaid
payment services business.




Our
marketable securities at October 31, 2009 included auction rate securities with
a cost of $14.3 million and an estimated fair value of $0.5 million. The
underlying asset for these securities is preferred stock of the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation. The fair
values of the auction rate securities, which cannot be corroborated by the
market, were estimated based on the value of the underlying assets and our
assumptions. In fiscal 2009 and fiscal 2008, we recorded an aggregate $13.9
million loss after determining that there were other than temporary declines in
the value of these auction rate securities.




On
September 30, 2008, we received notice from the New York Stock Exchange (or
NYSE) that we were no longer in compliance with the NYSE’s $100 million average
market capitalization threshold over a 30-day trading period requirement
required for continued listing. We submitted a plan to the NYSE to regain
compliance with the market capitalization standard, and that plan was accepted.
The NYSE monitors compliance with the plan and may commence delisting procedures
if we fail to meet the milestones set forth in its plan. We have until March
2010 to regain compliance with the $100 million market capitalization standard.
As of December 11, 2009, we had a 30-day average market capitalization of $83.9
million.




Three
      months ended
              October
      31,2009
            
            
            2008(in
      millions)Cash flows provided by (used in):Operating activities
            
            $
            2.2
            
            
            $
            (52.4
            )Investing activities
            
            
            52.4
            
            
            
            16.9Financing activities
            
            
            (13.8
            )
            
            
            (4.6
            )Effect of exchange rate changes on cash and cash equivalents
            
            
            0.6
            
            
            
            (4.3
            )Increase (decrease) in cash and cash equivalents from continuing
      operations
            
            
            41.4
            
            
            
            (44.4
            )Net cash provided by discontinued operations
            
            
            0.4
            
            
            
            1.9Increase (decrease) in cash and cash equivalents
            
            $
            41.8
            
            
            $
            (42.5
            )





Operating
Activities




Our cash
flow from operations varies significantly from quarter to quarter and from year
to year, depending on our operating results and the timing of operating cash
receipts and payments, specifically trade accounts receivable and trade accounts
payable.




As of
October 31, 2009, our company-wide cost savings program and our reduction in
force have resulted in the termination of approximately 1,580 employees since
the third quarter of fiscal 2006. Severance and other payments related to these
cost savings





35
 Table of Contents
 
 programs
were $2.6 million and $6.5 million in the three months ended October 31, 2009
and 2008, respectively. As of October 31, 2009, $4.0 million remained accrued
for the ultimate payment of severance and other costs related to these cost
savings initiatives.




We
currently remain subject to examinations of our income tax returns as follows:
U.S. federal tax returns for fiscal 2005 to fiscal 2009, state and local tax
returns generally for fiscal 2001 to fiscal 2009 and foreign tax returns
generally for fiscal 2002 to fiscal 2009. The Internal Revenue Service is
currently conducting an audit of our U.S. federal tax returns for fiscal years
2006, 2007 and 2008. Our management believes that we have adequately reserved
for all tax positions, however amounts asserted by taxing authorities could be
greater than the accrued amounts. Accordingly, additional tax provisions may be
recorded in the future as revised estimates are made or the underlying matters
are settled or resolved.




We are
currently subject to audits in various jurisdictions for various other taxes,
including audits relating to value added tax, or VAT, sales and use tax, payroll
tax, gross receipts tax and property tax. On September 4, 2008, a Swedish
court granted an application made by the Swedish Tax Agency to seize SEK
100 million ($13.2 million) of assets owned by one of our subsidiaries,
Inter Direct Tel Ltd., as security for payment of VAT. Inter Direct Tel appealed
the seizure order and on October 6, 2008, the appellate court reversed the
lower court’s seizure order. On December 17, 2008, the Swedish Tax
Agency sent Inter Direct Tel an Audit Memo describing its reasoning
for a VAT assessment of approximately SEK 112 million ($14.8 million) and
SEK 22 million ($2.9 million) in penalties. On March 27, 2009,
Inter Direct Tel responded to the comments in the Audit Memo. On
June 5, 2009, Inter Direct Tel received a re-assessment from the Swedish
Tax Agency in the same amounts assessed in the Audit Memo with the payment due
on July 13, 2009. Inter Direct Tel received a suspension of the payment
obligation until the matter is addressed by the appropriate court. On
September 30, 2009, Inter Direct Tel filed an appeal of the re-assessment.
On October 27, 2009, the Swedish Tax Agency issued its decision on the
re-assessment which did not change its previous assessment. On December 9, 2009,
Inter Direct Tel submitted its response to the Swedish Tax Agency’s decision to
the County Administrative Court. We cannot be certain of the ultimate outcome of
this matter at this time.




Two of
the more significant other audits relate to sales and use tax in New Jersey and
payroll tax in Newark, New Jersey, for which we have accrued an aggregate of
$5.7 million as of October 31, 2009. Our management believes that we have
adequately provided for all of the obligations for these taxes, however amounts
asserted by taxing authorities or the amount ultimately assessed against us
could be greater than the accrued amounts. Accordingly, additional provisions
may be recorded in the future as revised estimates are made or underlying
matters are settled or resolved. Imposition of assessments as a result of tax
and regulatory audits could have an adverse affect on our results of operations,
cash flows and financial condition.




Investing
Activities




In the
three months ended October 31, 2009 and 2008, proceeds from sales and maturities
of marketable securities net of purchases of marketable securities were nil and
$32.4 million, respectively.




Our
capital expenditures were $2.8 million in the three months ended October 31,
2009 compared to $2.5 million in the three months ended October 31, 2008.
We currently anticipate that total capital expenditures for all of our divisions
for the year ending October 31, 2010 will be in the $7.5 million to
$12.5 million range. In May 2009, we completed the migration of our global
network from dedicated capacity time-division multiplexing (TDM) circuits to
burstable Internet protocol circuits, which utilize connectivity capacity more
efficiently and results in lower overall cost. We expect to fund our capital
expenditures with our cash, cash equivalents and marketable securities on hand.
From time to time, we may also finance a portion of our capital expenditures
through capital leases.




In the
three months ended October 31, 2009 and 2008, cash used for capital
contributions to AMSO, LLC was $0.3 million and nil, respectively. We received
$0.5 million and $5.0 million in the three months ended October 31, 2009 and
2008, respectively, from the redemption of certain of our investments in pooled
investment vehicles.




Restricted
cash and cash equivalents decreased $49.8 million in the three months ended
October 31, 2009 primarily due to the decrease in collateral required to secure
IDT Energy’s purchases of natural gas, electric capacity, energy and ancillary
services. Restricted cash and cash equivalents increased $18.0 million in the
three months ended October 31, 2008 as a result of our shifting balances from
restricted marketable securities to restricted cash and cash equivalents during
the period. Restricted cash, cash equivalents and marketable securities serve as
collateral for letters of credit to secure equipment financing, mortgage
repayments on various buildings and IDT Energy’s purchases of natural gas,
electric capacity, energy and ancillary services.




As of
June 29, 2009, IDT Energy entered into a Preferred Supplier Agreement with
BP, pursuant to which BP is IDT Energy’s preferred provider of electricity and
natural gas in New York State. The agreement allows for purchases of electricity
and natural gas for customers in areas where the utilities have purchase of
receivable programs, and includes a one-time inclusion of existing IDT Energy
customers not covered by a purchase of receivable program. IDT Energy purchases
electricity and natural gas from BP and pays a fee based on volumetric loads in
accordance with the agreement. IDT Energy’s obligations to BP are secured by its
receivables from its customers and under certain circumstances the posting of
letters of credit. The term of this agreement is two years, with an automatic
renewal for an additional year unless either party objects. IDT Energy’s ability
to purchase electricity and natural gas under this agreement is subject to
satisfaction of certain conditions including the maintenance of certain
covenants. As a result of this





36
 Table of Contents
 
 agreement,
an aggregate of $57.0 million in letters of credit outstanding at July 31,
2009 that was collateral for IDT Energy was reduced to $7.0 million at
October 31, 2009.




Proceeds
from sales of buildings of $5.2 million in the three months ended October 31,
2009 includes $4.4 million from the sale of the Hillview Avenue property and
$0.8 million from the sale of our land and building in San Juan, Puerto Rico. On
July 31, 2009, Hillview closed on the sale of its property located at 3373
and 3375 Hillview Avenue in Palo Alto, California. We have a 69.27% ownership
interest in Hillview. The sales price was $62.7 million. Our proceeds from the
sale, after deduction of the mortgage debt secured by the property that was
assumed by the buyer or repaid in connection with the sale, and transaction
expenses were $4.4 million, which was received in August 2009. In November 2009,
we paid $1.5 million of the proceeds to the other owners of Hillview. On
October 23, 2009, we sold our land and building in San Juan, Puerto Rico
that was used for our domestic call center operations. The sales price was cash
of $7.4 million. Our net proceeds from the sale, after payment of the mortgage
debt secured by the property and transaction expenses were $0.8 million. We
recorded a nominal loss on the sale in the three months ended October 31,
2009.




Financing
Activities




On
September 14, 2009, we completed the CTM Spin-Off, which was a pro rata
distribution of the common stock of CTM Holdings to our stockholders of record
as of the close of business on August 3, 2009. CTM Holdings and
subsidiaries were deconsolidated as of the date of the CTM Spin-Off. Cash and
cash equivalents of CTM Holdings and subsidiaries of $9.8 million were
deconsolidated as a result of the CTM Spin-Off.




We
distributed cash of $0.6 million and $0.3 million in the three months ended
October 31, 2009 and 2008, respectively, to the holders of noncontrolling
interests in subsidiaries.




Repayments
of capital lease obligations were $1.7 million and $2.2 million in the three
months ended October 31, 2009 and 2008, respectively. We also repaid other
borrowings of $0.2 million and $0.3 million in the three months ended October
31, 2009 and 2008, respectively.




In June
2006, our Board of Directors authorized a stock repurchase program for the
repurchase of up to an aggregate of 8.3 million shares of our Class B
common stock and common stock, without regard to class. On December 17,
2008, our Board of Directors increased the aggregate number of shares of our
Class B common stock and common stock, without regard to class, that we are
authorized to repurchase under the stock repurchase program from the
3.3 million shares that remained available for repurchase to
8.3 million shares. In the three months ended October 31, 2009, we
repurchased an aggregate of 0.2 million shares of Class B common stock and
0.4 million shares of common stock for an aggregate purchase price of $1.5
million. In the three months ended October 31, 2008, we repurchased an aggregate
of 1.2 million shares of Class B common stock and 0.3 million shares
of common stock for an aggregate purchase price of $2.9 million. As of October
31, 2009, 5.5 million shares remained available for repurchase under the
stock repurchase program.




On
September 23, 2008, we sold a 10% ownership interest in Zedge to Shaman II,
L.P. for cash of $1.0 million. One of the limited partners in Shaman II, L.P.
was a former employee of ours.




Contractual
Obligations and Other Commercial Commitments




Smaller
reporting companies are not required to provide the information required by this
item.




Changes
in Trade Accounts Receivable and Allowance for Doubtful Accounts




Gross
trade accounts receivable decreased to $129.2 million at October 31, 2009 from
$154.4 million at July 31, 2009 mostly due to reductions in revenues. The
allowance for doubtful accounts as a percentage of gross trade accounts
receivable decreased to 9.9% at October 31, 2009 from 10.2% at July 31, 2009
mainly because the allowance balance decreased 18.4% while the gross trade
accounts receivable balance decreased 16.4%.




Other
Sources and Uses of Resources




We intend
to, where appropriate, make limited strategic investments and small acquisitions
to complement, expand and/or enter into new businesses. In considering
acquisitions and investments, we search for opportunities to profitably grow our
existing businesses, to add qualitatively to the range of businesses in our
portfolio and to achieve operational synergies. At this time, we cannot
guarantee that we will be presented with acquisition opportunities that meet our
return on investment criteria, or that our efforts to make acquisitions that
meet our criteria will be successful. In addition from time to time, we have
made strategic dispositions of certain businesses (such as Corbina Telecom, IDT
Entertainment, our U.K.-based Toucan business and IDT Carmel’s debt portfolios).
We continually evaluate our portfolio for opportunities to monetize select
businesses where we deem appropriate.




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We
incurred a loss from continuing operations in each of the five years in the
period ended July 31, 2009 and in the three months ended October 31, 2009. We
incurred a net loss in the three months ended October 31, 2009, and in fiscal
2009, fiscal 2008, fiscal 2006 and fiscal 2005, and would have incurred a net
loss in fiscal 2007 except for a gain on the sale of IDT Entertainment. We also
had negative cash flow from operating activities in each of the three years in
the period ended July 31, 2009. We had an accumulated deficit at October 31,
2009 of $255.4 million. Historically, we satisfied our cash requirements
primarily through a combination of our existing cash and cash equivalents,
proceeds from the sale of businesses, proceeds from the sales and maturities of
marketable securities and investments, arbitration awards and litigation
settlements, and borrowings from third parties. We currently expect our
operations in the next twelve months and the balance of cash, cash equivalents,
marketable securities and pooled investment vehicles including hedge funds that
we held as of October 31, 2009 will be sufficient to meet our currently
anticipated working capital and capital expenditure requirements, and to fund
any potential operating cash flow deficits within any of our segments for at
least the next twelve months. The foregoing is based on a number of assumptions,
including that we will collect our receivables, effectively manage our working
capital requirements, prevail in legal actions and other claims initiated
against us, and maintain our revenue levels and liquidity. Predicting these
matters is particularly difficult in the current worldwide economic situation
and overall decline in consumer demand. Failure to generate sufficient revenue
and operating income could have a material adverse effect on our results of
operations, financial condition and cash flows. The recoverability of assets is
highly dependent on the ability of management to execute our business
plan.




Foreign
Currency Risk




Revenues
from our international operations represented 39.4% and 35.4% of our
consolidated revenues from continuing operations for the three months ended
October 31, 2009 and 2008, respectively. A significant portion of these revenues
is in currencies other than the U.S. Dollar. Our foreign currency exchange risk
is somewhat mitigated by our ability to offset the majority of these non
U.S. Dollar-denominated revenues with operating expenses that are paid in
the same currencies. While the impact from fluctuations in foreign exchange
rates affects our revenue and expenses denominated in foreign currencies, the
net amount of our exposure to foreign currency exchange rate changes at the end
of each reporting period is generally not material. From time to time, we may
enter into foreign exchange hedges, although there were none outstanding since
the fourth quarter of fiscal 2008.




Off-Balance
Sheet Arrangements




We do not
have any “off-balance sheet arrangements,” as defined in relevant SEC
regulations that are reasonably likely to have a current or future effect on our
financial condition, results of operations, liquidity, capital expenditures or
capital resources.




Recently
Issued Accounting Standards Not Yet Adopted




In June
2009, the Financial Accounting Standards Board, or FASB, issued changes to the
accounting for transfers of financial assets. These changes include
(a) eliminating the concept of a qualifying special-purpose entity, or
QSPE, (b) clarifying and amending the derecognition criteria for a transfer
to be accounted for as a sale, (c) amending and clarifying the unit of
account eligible for sale accounting, and (d) requiring that a transferor
initially measure at fair value and recognize all assets obtained and
liabilities incurred as a result of a transfer of an entire financial asset or
group of financial assets accounted for as a sale. Additionally, on and after
the effective date, existing QSPEs must be evaluated for consolidation by
reporting entities in accordance with the applicable consolidation guidance.
These changes also require enhanced disclosures about, among other things,
(a) a transferor’s continuing involvement with transfers of financial
assets accounted for as sales, (b) the risks inherent in the transferred
financial assets that have been retained, and (c) the nature and financial
effect of restrictions on the transferor’s assets that continue to be reported
in the statement of financial position. We are required to adopt these changes
on August 1, 2010. We are currently evaluating the impact of these changes
on our consolidated financial statements.




In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity, or VIE, including amending the guidance governing the
determination of whether an enterprise is the primary beneficiary of a VIE, and
is, therefore, required to consolidate the entity, by requiring a qualitative
analysis rather than a quantitative analysis. The qualitative analysis will
include, among other things, consideration of who has the power to direct the
activities of the entity that most significantly impact the entity’s economic
performance and who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE. The
changes also require continuous reassessments of whether an enterprise is the
primary beneficiary of a VIE and enhanced disclosures about an enterprise’s
involvement with a VIE. We are required to adopt these changes on August 1,
2010. We are currently evaluating the impact of these changes on our
consolidated financial statements.




Item 3.               Quantitative
and Qualitative Disclosures About Market Risks




Smaller
reporting companies are not required to provide the information required by this
item.




38
 Table of Contents




Item 4T.             Controls
and Procedures




Evaluation of Disclosure Controls
and Procedures. Our Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as amended), as of the end of the period
covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that as of
such date, our disclosure controls and procedures were effective.




Changes in Internal Control over
Financial Reporting. There were no changes in our internal control
over financial reporting during the quarter ended October 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.






39
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PART II. OTHER INFORMATION




Item 1.               Legal
Proceedings




Legal
proceedings in which we are involved are more fully described in Note 12 to the
Condensed Consolidated Financial Statements included in Item 1 to Part I of
this Quarterly Report on Form 10-Q.




Item 1A.            Risk
Factors




Smaller
reporting companies are not required to provide the information required by this
item.




Item 2.               Unregistered
Sales of Equity Securities and Use of Proceeds




The
following table provides information with respect to purchases by the Company of
its shares during the first quarter of fiscal 2010.




Total
              Number of
              Shares
              Purchased
            
            
            Average
              Price
              per Share
            
            
            Total Number
              of
      Shares
              Purchased
      as
              part
      of
              Publicly
              Announced
              Plans
      or
              Programs
            
            
            Maximum
              Number
      of
              Shares
      that
              May
      Yet Be
              Purchased
              Under
      the
              Plans
      or
              Programs (1)August 1–31, 2009 (2)
            
            
            424,000
            
            
            $
            2.49
            
            
            
            424,000
            
            
            
            5,637,883September 1–30, 2009 (3)
            
            
            143,500
            
            
            $
            2.75
            
            
            
            143,500
            
            
            
            5,494,383October 1–31, 2009
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            
            5,494,383Total
            
            
            567,500
            
            
            $
            2.56
            
            
            
            567,500


______________


(1)
            Under
      our existing stock repurchase program, approved by our Board of Directors
      on June 13, 2006, we were authorized to repurchase up to an aggregate
      of 8.3 million shares of our Class B common stock and our common
      stock, without regard to class. On December 17, 2008, our Board of
      Directors (i) approved a one-for-three reverse stock split of all
      classes of our common stock which was effective on February 24, 2009,
      and (ii) amended the stock repurchase program to increase the
      aggregate number of shares of our Class B common stock and common stock,
      without regard to class, that we are authorized to repurchase from the
      3.3 million shares that remained available for repurchase to
      8.3 million shares.


(2)
            Consists
      of 347,500 shares of common stock and 76,500 shares of Class B common
      stock purchased pursuant to the stock repurchase program, resulting in an
      aggregate of 5,637,883 shares that may yet be purchased under the stock
      repurchase program.


(3)
            Consists
      of 43,700 shares of common stock and 99,800 shares of Class B common stock
      purchased pursuant to the stock repurchase program, resulting in an
      aggregate of 5,494,383 shares that may yet be purchased under the stock
      repurchase program.





Item 3.               Defaults
Upon Senior Securities




None




Item 4.               Submission
of Matters to a Vote of Security Holders




None




Item 5.               Other
Information




None








40
 Table of Contents




Item 6.               Exhibits




Exhibit
              Number
            
            Description31.1*
            
            Certification
      of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted
      pursuant to §302 of the Sarbanes-Oxley Act of 2002.31.2*
            
            Certification
      of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted
      pursuant to §302 of the Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to §906 of the Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to §906 of the Sarbanes-Oxley Act of
  2002.





*
            Filed
      herewith.








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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
      CORPORATIONDecember
      15, 2009
            
            By:
            /s/    HOWARD S. JONASHoward
      S. Jonas
              Chairman
      and Chief Executive OfficerDecember
      15, 2009
            
            By:
            /s/    BILL PEREIRABill
      Pereira
              Chief
      Financial Officer and Treasurer