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 APRIL 30, 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 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
              xNon-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
June 3, 2009, the registrant had the following shares outstanding:
  Common
      Stock, $.01 par value:
              4,294,254
      shares outstanding (excluding 4,947,241 treasury
shares)Class A
      common stock, $.01 par value:
              3,272,329
      shares outstandingClass B common stock, $.01 par value:
              16,309,190
      shares outstanding (excluding 6,603,762 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
              22Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risks
              45Item 4T.
              Controls and Procedures
              45PART II.  OTHER INFORMATION
              46Item 1.
              Legal Proceedings
              46Item 1A.
              Risk Factors
              46Item 2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              46Item 3.
              Defaults Upon Senior Securities
              46Item 4.
              Submission of Matters to a Vote of Security
      Holders
              46Item 5.
              Other Information
              47Item 6.
              Exhibits
              47SIGNATURES
              48
   Table of Contents
  PART
I. FINANCIAL INFORMATION
  Item 1.              Financial
Statements (Unaudited)
  IDT
CORPORATION
  CONDENSED CONSOLIDATED BALANCE SHEETS
  April
      30,
                                        2009
                                      
                                      
                                      July 31,
                                        2008(Unaudited)
                                      
                                      
                                      (Note
      1)(in
      thousands)AssetsCurrent
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      126,095
                                      
                                      
                                      $
                                      163,152Restricted
      cash and cash equivalents (Note 14)
                                      
                                      
                                      58,671
                                      
                                      
                                      
                                      4,133Marketable
      securities (Note 14)
                                      
                                      
                                      16,553
                                      
                                      
                                      
                                      111,462Trade
      accounts receivable, net of allowance for doubtful accounts of $20,641 at
      April 30, 2009 and
                                        $21,589 at July 31, 2008
                                      
                                      
                                      138,075
                                      
                                      
                                      
                                      178,594Prepaid
      expenses
                                      
                                      
                                      16,351
                                      
                                      
                                      
                                      22,572Investments—short-term
                                      
                                      
                                      5,464
                                      
                                      
                                      
                                      22,563Other
      current assets
                                      
                                      
                                      32,510
                                      
                                      
                                      
                                      55,761Assets
      of discontinued operations
                                      
                                      
                                      354
                                      
                                      
                                      
                                      68,202Total
      current assets
                                      
                                      
                                      394,073
                                      
                                      
                                      
                                      626,439Property,
      plant and equipment, net
                                      
                                      
                                      197,530
                                      
                                      
                                      
                                      227,944Goodwill
                                      
                                      
                                      12,355
                                      
                                      
                                      
                                      74,509Licenses
      and other intangibles, net
                                      
                                      
                                      2,182
                                      
                                      
                                      
                                      9,394Investments—long-term
                                      
                                      
                                      10,481
                                      
                                      
                                      
                                      40,295Deferred
      income tax assets, net
                                      
                                      
                                      —
                                      
                                      
                                      
                                      2,300Other
      assets
                                      
                                      
                                      19,281
                                      
                                      
                                      
                                      22,094Total
      assets
                                      
                                      $
                                      635,902
                                      
                                      
                                      $
                                      1,002,975Liabilities
      and stockholders’ equityCurrent
      liabilities:Trade
      accounts payable
                                      
                                      $
                                      54,816
                                      
                                      
                                      $
                                      82,974Accrued
      expenses
                                      
                                      
                                      159,824
                                      
                                      
                                      
                                      202,534Deferred
      revenue
                                      
                                      
                                      69,305
                                      
                                      
                                      
                                      88,618Income
      taxes payable
                                      
                                      
                                      33,599
                                      
                                      
                                      
                                      123,000Capital
      lease obligations—current portion
                                      
                                      
                                      7,682
                                      
                                      
                                      
                                      9,316Notes
      payable—current portion
                                      
                                      
                                      2,185
                                      
                                      
                                      
                                      2,115Other
      current liabilities
                                      
                                      
                                      14,534
                                      
                                      
                                      
                                      15,021Liabilities
      of discontinued operations
                                      
                                      
                                      1,732
                                      
                                      
                                      
                                      1,472Total
      current liabilities
                                      
                                      
                                      343,677
                                      
                                      
                                      
                                      525,050Capital
      lease obligations—long-term portion
                                      
                                      
                                      6,831
                                      
                                      
                                      
                                      11,148Notes
      payable—long-term portion
                                      
                                      
                                      98,494
                                      
                                      
                                      
                                      100,150Other
      liabilities
                                      
                                      
                                      17,474
                                      
                                      
                                      
                                      18,441Total
      liabilities
                                      
                                      
                                      466,476
                                      
                                      
                                      
                                      654,789Minority
      interests
                                      
                                      
                                      3,353
                                      
                                      
                                      
                                      5,849Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, $.01 par value; authorized shares—10,000; no shares
      issued
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —Common
      stock, $.01 par value; authorized shares—100,000; 9,242 and 8,358 shares
      issued and 4,295 and 4,847 shares outstanding at April 30, 2009 and
      July 31, 2008, respectively
                                      
                                      
                                      92
                                      
                                      
                                      
                                      84Class A
      common stock, $.01 par value; authorized shares—35,000; 3,272 shares
      issued and outstanding at April 30, 2009 and July 31,
      2008
                                      
                                      
                                      33
                                      
                                      
                                      
                                      33Class
      B common stock, $.01 par value; authorized shares—200,000; 22,913 and
      21,301 shares issued and 16,309 and 17,083 shares outstanding at April 30,
      2009 and July 31, 2008, respectively
                                      
                                      
                                      229
                                      
                                      
                                      
                                      213Additional
      paid-in capital
                                      
                                      
                                      720,188
                                      
                                      
                                      
                                      717,256Treasury
      stock, at cost, consisting of 4,947 and 3,511 shares of common stock and
      6,604 and 4,218 shares of Class B common stock at April 30, 2009 and
      July 31, 2008, respectively
                                      
                                      
                                      (292,104
                                      )
                                      
                                      
                                      (285,536
                                      )Accumulated
      other comprehensive (loss) income
                                      
                                      
                                      (3,218
                                      )
                                      
                                      
                                      6,754Accumulated
      deficit
                                      
                                      
                                      (259,147
                                      )
                                      
                                      
                                      (96,467
                                      )Total
      stockholders’ equity
                                      
                                      
                                      166,073
                                      
                                      
                                      
                                      342,337Total
      liabilities and stockholders’ equity
                                      
                                      $
                                      635,902
                                      
                                      
                                      $
                                      1,002,975
  See
accompanying notes to condensed consolidated financial statements.
  3
 Table of Contents
   IDT
CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
 (Unaudited)
  Three
      Months Ended
                                                April
      30,
                                              
                                              
                                              Nine
      Months Ended
                                                April
      30,2009
                                              
                                              
                                              2008
                                              
                                              
                                              2009
                                              
                                              
                                              2008(In
      thousands, except per share data)Revenues
                                              
                                              $
                                              388,989
                                              
                                              
                                              $
                                              440,735
                                              
                                              
                                              $
                                              1,258,781
                                              
                                              
                                              $
                                              1,363,497Costs
      and expenses:Direct
      cost of revenues (exclusive of depreciation and
    amortization)
                                              
                                              
                                              295,706
                                              
                                              
                                              
                                              350,550
                                              
                                              
                                              
                                              963,865
                                              
                                              
                                              
                                              1,077,620Selling,
      general and administrative (i)
                                              
                                              
                                              74,169
                                              
                                              
                                              
                                              116,768
                                              
                                              
                                              
                                              239,732
                                              
                                              
                                              
                                              346,065Depreciation
      and amortization
                                              
                                              
                                              11,894
                                              
                                              
                                              
                                              17,345
                                              
                                              
                                              
                                              38,869
                                              
                                              
                                              
                                              51,717Bad
      debt
                                              
                                              
                                              2,820
                                              
                                              
                                              
                                              3,078
                                              
                                              
                                              
                                              7,623
                                              
                                              
                                              
                                              8,321Research
      and development
                                              
                                              
                                              1,548
                                              
                                              
                                              
                                              8,885
                                              
                                              
                                              
                                              7,932
                                              
                                              
                                              
                                              9,808Impairments
                                              
                                              
                                              62,120
                                              
                                              
                                              
                                              54
                                              
                                              
                                              
                                              72,761
                                              
                                              
                                              
                                              262Restructuring
      charges
                                              
                                              
                                              609
                                              
                                              
                                              
                                              16,453
                                              
                                              
                                              
                                              8,438
                                              
                                              
                                              
                                              20,427Total
      costs and expenses
                                              
                                              
                                              448,866
                                              
                                              
                                              
                                              513,133
                                              
                                              
                                              
                                              1,339,220
                                              
                                              
                                              
                                              1,514,220Gain
      on sale of interest in AMSO, LLC
                                              
                                              
                                              2,606
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,606
                                              
                                              
                                              
                                              —Arbitration
      award income
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              40,000Loss
      from operations
                                              
                                              
                                              (57,271
                                              )
                                              
                                              
                                              (72,398
                                              )
                                              
                                              
                                              (77,833
                                              )
                                              
                                              
                                              (110,723
                                              )Interest
      (expense) income, net
                                              
                                              
                                              (2,092
                                              )
                                              
                                              
                                              (299
                                              )
                                              
                                              
                                              (4,796
                                              )
                                              
                                              
                                              5,308Other
      income (expense), net
                                              
                                              
                                              1,141
                                              
                                              
                                              
                                              (8,348
                                              )
                                              
                                              
                                              (30,637
                                              )
                                              
                                              
                                              (9,633
                                              )Loss
      from continuing operations before minority interests and income
      taxes
                                              
                                              
                                              (58,222
                                              )
                                              
                                              
                                              (81,045
                                              )
                                              
                                              
                                              (113,266
                                              )
                                              
                                              
                                              (115,048
                                              )Minority
      interests
                                              
                                              
                                              (822
                                              )
                                              
                                              
                                              (317
                                              )
                                              
                                              
                                              (36
                                              )
                                              
                                              
                                              (976
                                              )Provision
      for income taxes
                                              
                                              
                                              (1,353
                                              )
                                              
                                              
                                              (2,208
                                              )
                                              
                                              
                                              (10,511
                                              )
                                              
                                              
                                              (8,707
                                              )Loss
      from continuing operations
                                              
                                              
                                              (60,397
                                              )
                                              
                                              
                                              (83,570
                                              )
                                              
                                              
                                              (123,813
                                              )
                                              
                                              
                                              (124,731
                                              )Discontinued
      operations, net of tax:(Loss)
      income from discontinued operations
                                              
                                              
                                              (3,039
                                              )
                                              
                                              
                                              1,844
                                              
                                              
                                              
                                              (38,867
                                              )
                                              
                                              
                                              (8,640
                                              )Loss
      on sale of discontinued operations
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (485
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (4,529
                                              )Total
      discontinued operations
                                              
                                              
                                              (3,039
                                              )
                                              
                                              
                                              1,359
                                              
                                              
                                              
                                              (38,867
                                              )
                                              
                                              
                                              (13,169
                                              )Net
      loss
                                              
                                              $
                                              (63,436
                                              )
                                              
                                              $
                                              (82,211
                                              )
                                              
                                              $
                                              (162,680
                                              )
                                              
                                              $
                                              (137,900
                                              )Earnings
      per share:Basic
      and diluted:Loss
      from continuing operations
                                              
                                              $
                                              (2.74
                                              )
                                              
                                              $
                                              (3.34
                                              )
                                              
                                              $
                                              (5.36
                                              )
                                              
                                              $
                                              (4.89
                                              )Total
      discontinued operations
                                              
                                              
                                              (0.14
                                              )
                                              
                                              
                                              0.05
                                              
                                              
                                              
                                              (1.69
                                              )
                                              
                                              
                                              (0.51
                                              )Net
      loss
                                              
                                              $
                                              (2.88
                                              )
                                              
                                              $
                                              (3.29
                                              )
                                              
                                              $
                                              (7.05
                                              )
                                              
                                              $
                                              (5.40
                                              )Weighted-average
      number of shares used in calculation of basic and diluted earnings per
      share
                                              
                                              
                                              22,052
                                              
                                              
                                              
                                              25,005
                                              
                                              
                                              
                                              23,081
                                              
                                              
                                              
                                              25,518(i)Stock-based
      compensation included in selling, general and
                                                administrative
      expenses
                                              
                                              $
                                              760
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              2,720
                                              
                                              
                                              $
                                              3,169
  See
accompanying notes to condensed consolidated financial statements.
  4
 Table of Contents
  IDT
CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
  Nine
      Months Ended
                                          April
      30,2009
                                        
                                        
                                        2008(in
      thousands)Net
      cash used in operating activities
                                        
                                        $
                                        (96,729
                                        )
                                        
                                        $
                                        (115,303
                                        )Investing
      activitiesCapital
      expenditures
                                        
                                        
                                        (10,703
                                        )
                                        
                                        
                                        (13,937
                                        )Purchase
      of building
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (24,778
                                        )Repayment
      of notes receivable, net
                                        
                                        
                                        168
                                        
                                        
                                        
                                        14,789Investments
      and acquisitions
                                        
                                        
                                        (2,504
                                        )
                                        
                                        
                                        (21,749
                                        )Proceeds
      from sale and redemption of investments
                                        
                                        
                                        26,351
                                        
                                        
                                        
                                        10,945Restricted
      cash and cash equivalents
                                        
                                        
                                        (54,538
                                        )
                                        
                                        
                                        791Proceeds
      from sale of interest in AMSO, LLC
                                        
                                        
                                        3,198
                                        
                                        
                                        
                                        —Proceeds
      from sale of building
                                        
                                        
                                        —
                                        
                                        
                                        
                                        4,872Proceeds
      from sales and maturities of marketable securities
                                        
                                        
                                        145,316
                                        
                                        
                                        
                                        633,242Purchases
      of marketable securities
                                        
                                        
                                        (56,035
                                        )
                                        
                                        
                                        (402,058
                                        )Net
      cash provided by investing activities
                                        
                                        
                                        51,253
                                        
                                        
                                        
                                        202,117Financing
      activitiesDistributions
      to minority shareholders of subsidiaries
                                        
                                        
                                        (2,285
                                        )
                                        
                                        
                                        (3,897
                                        )Proceeds
      from sales of stock of subsidiaries
                                        
                                        
                                        1,187
                                        
                                        
                                        
                                        —Proceeds
      from exercise of stock options
                                        
                                        
                                        —
                                        
                                        
                                        
                                        94Proceeds
      from employee stock purchase plan
                                        
                                        
                                        36
                                        
                                        
                                        
                                        808Repayments
      of capital lease obligations
                                        
                                        
                                        (5,984
                                        )
                                        
                                        
                                        (22,722
                                        )Repayments
      of borrowings
                                        
                                        
                                        (1,585
                                        )
                                        
                                        
                                        (3,032
                                        )Repurchases
      of common stock and Class B common stock
                                        
                                        
                                        (6,568
                                        )
                                        
                                        
                                        (45,279
                                        )Net
      cash used in financing activities
                                        
                                        
                                        (15,199
                                        )
                                        
                                        
                                        (74,028
                                        )Discontinued
      operationsNet
      cash (used in) provided by operating activities
                                        
                                        
                                        (2,808
                                        )
                                        
                                        
                                        6,966Net
      cash provided by (used in) investing activities
                                        
                                        
                                        29,687
                                        
                                        
                                        
                                        (48,224
                                        )Net
      cash (used in) provided by financing activities
                                        
                                        
                                        (43
                                        )
                                        
                                        
                                        382Net
      cash provided by (used in) discontinued operations
                                        
                                        
                                        26,836
                                        
                                        
                                        
                                        (40,876
                                        )Effect
      of exchange rate changes on cash and cash equivalents
                                        
                                        
                                        (4,728
                                        )
                                        
                                        
                                        3,913Net
      decrease in cash and cash equivalents
                                        
                                        
                                        (38,567
                                        )
                                        
                                        
                                        (24,177
                                        )Cash
      and cash equivalents (including discontinued operations) at beginning of
      period
                                        
                                        
                                        164,886
                                        
                                        
                                        
                                        151,404Cash
      and cash equivalents (including discontinued operations) at end of
      period
                                        
                                        
                                        126,319
                                        
                                        
                                        
                                        127,227Less
      cash and cash equivalents of discontinued operations at end of
      period
                                        
                                        
                                        (224
                                        )
                                        
                                        
                                        (2,379
                                        )Cash
      and cash equivalents (excluding discontinued operations) at end of
      period
                                        
                                        $
                                        126,095
                                        
                                        
                                        $
                                        124,848Supplemental
      schedule of non-cash investing activitiesPurchases
      of property, plant and equipment through capital lease
      obligations
                                        
                                        $
                                        95
                                        
                                        
                                        $
                                        234Assumption
      of mortgage payable in connection with the purchase of
      building
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        26,851
  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 (“US 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 US 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 and nine months ended April 30,
2009 are not necessarily indicative of the results that may be expected for the
fiscal year ending July 31, 2009. The balance sheet at July 31, 2008
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
US 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 year ended July 31, 2008,
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 2009 refers to the fiscal year ending July 31,
2009).
  Certain
prior year amounts have been reclassified to conform to the current year’s
presentation. As described in Note 4, IDT Carmel has been reclassified to
discontinued operations for all periods presented. At July 31, 2008,
restricted cash and cash equivalents of $4.1 million previously included in cash
and cash equivalents has been stated separately in the condensed consolidated
balance sheet. Restricted cash and cash equivalents of $4.1 million, $2.4
million and $1.6 million at July 31, 2008, July 31, 2007 and
April 30, 2008, respectively, previously included in cash and cash equivalents
have been excluded from cash and cash equivalents in the condensed consolidated
statements of cash flows. For the three and nine months ended April 30, 2008,
impairments of $0.1 million and $0.3 million, respectively, and restructuring
charges of $16.5 million and $20.4 million, respectively, previously combined in
restructuring and severance charges have been stated separately in the condensed
consolidated statement of operations. As described in Note 11, business
segment results for the three and nine months ended April 30, 2008 have been
reclassified and restated to conform to the current year’s
presentation.
  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
$2.1 million in the three and nine months ended April 30, 2009, respectively,
and $0.9 million and $2.9 million in the three and nine months ended April 30,
2008, respectively, were recorded on a gross basis.
  On
September 30, 2008 and October 8, 2008, the Company received notices
from the New York Stock Exchange (“NYSE”) that it was no longer in compliance
with the NYSE’s $100 million market capitalization threshold and the $1.00
average closing price over a consecutive 30-day trading period requirement,
respectively, required for continued listing. The Company submitted a plan to
the NYSE to regain compliance, and that plan was accepted. The NYSE monitors
compliance with the plan and may commence delisting procedures prior to either
deadline 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. In addition, according to the rules of the NYSE, the
NYSE will promptly initiate suspension and delisting procedures with respect to
a listed company that is determined to have average global market capitalization
over a consecutive 30 trading-day period of less than $25 million. The NYSE has
reduced this $25 million threshold to $15 million until June 30, 2009. The
Company is currently in compliance with this reduced threshold. On April 8,
2009, the NYSE notified the Company that the stock price for each of the
Company’s listed equity securities was above the NYSE’s minimum requirement of a
$1.00 average share price over the preceding 30 trading days and a $1.00 share
price on the close of the last trading day of the six-month cure period (April
8, 2009), thus restoring the Company’s compliance with the minimum share price
requirement for continued listing on the NYSE.
  A
one-for-three reverse stock split of all of our outstanding common stock,
Class A common stock and Class B common stock was effective on
February 24, 2009 (see Note 6). All share, weighted average share and per
share amounts in the accompanying condensed consolidated financial statements
and notes thereto have been retroactively adjusted for all periods presented to
reflect the one-for-three reverse stock split. The one-for-three reverse stock
split did not affect the number of authorized shares or the par value per
share.
   6
 Table of Contents
  The
Company incurred a loss from continuing operations in each of the five years in
the period ended July 31, 2008 and in the nine months ended April 30, 2009.
The Company incurred a net loss in the nine months ended April 30, 2009, and in
fiscal 2008, fiscal 2006, fiscal 2005 and fiscal 2004, and would have incurred a
net loss in fiscal 2007 except for a gain on the sale IDT Entertainment. The
Company also had negative cash flow from operating activities in each of the
three years in the period ended July 31, 2008 and in the nine months ended
April 30, 2009. The Company had an accumulated deficit at April 30, 2009 of
$259.1 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 April 30, 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 on 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.
  Note
2—Fair Value Measurements
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement on Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements,
which is effective for fiscal years beginning after November 15, 2007 and
for interim periods within those years. SFAS 157 defines fair value, establishes
a framework for measuring fair value in US GAAP, establishes a hierarchy
that categorizes and prioritizes the sources to be used to estimate fair value,
and expands the related disclosure requirements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements. SFAS
157 indicates, among other things, that a fair value measurement assumes that
the transaction to sell an asset or transfer a liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. SFAS 157 defines fair value
based upon an exit price model.
  In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, Effective Date of FASB Statement
No. 157, which delays the effective date of the application of SFAS
157 for all nonfinancial assets and nonfinancial liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring basis
to fiscal years beginning after November 15, 2008. Nonrecurring
nonfinancial assets and nonfinancial liabilities include those measured at fair
value in goodwill impairment testing, indefinite lived intangible assets
measured at fair value for impairment testing, those initially measured at fair
value in a business combination, and nonfinancial liabilities initially measured
at fair value for exit or disposal activities. The Company is required to adopt
SFAS 157 for nonrecurring nonfinancial assets and nonfinancial liabilities on
August 1, 2009. The Company does not expect the adoption of SFAS 157 for
nonrecurring nonfinancial assets and nonfinancial liabilities to have a material
impact on its financial position, results of operations or cash
flows.
  The
Company adopted SFAS 157 except as permitted under FSP 157-2 as of
August 1, 2008, which did not have a material impact on its financial
statements. On October 10, 2008, the FASB issued FSP 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active, which
clarifies application of SFAS 157 in a market that is not active. FSP 157-3 was
effective upon issuance, including prior periods for which financial statements
have not been issued. The Company adopted FSP 157-3 in October 2008. On April 9,
2009, the FASB issued FSP 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which
superseded FSP 157-3. FSP 157-4 provides additional guidance on (a) how to
determine when markets become inactive and thus potentially require significant
adjustment to transactions or quoted prices and (b) how to determine if a
transaction or group of transactions is forced or distressed (that is, not
orderly), and amends the disclosure provisions of SFAS 157. The Company was
required to apply FSP 157-4 beginning on May 1, 2009. The Company does not
expect FSP 157-4 to have a material impact on its financial position, results of
operations or cash flows.
  SFAS 157
establishes a valuation hierarchy for disclosure of the inputs to valuation used
to measure fair value. This hierarchy prioritizes the inputs into three broad
levels as follows. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities. Level 2 inputs are quoted
prices for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on the Company’s
assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement. The assessment of the significance of a particular input to the
fair value measurement requires judgment, and may affect the valuation of the
assets and liabilities being measured and their placement within the fair value
hierarchy.
  7
 Table of Contents
  The
following table presents the balances of assets and liabilities measured at fair
value on a recurring basis as of April 30, 2009:
  Level 1 (1)
                          
                          
                          Level 2 (2)
                          
                          
                          Level 3 (3)\
                          
                          
                          Total(in
      thousands)Assets:Marketable
      securities
                          
                          $
                          11,011
                          
                          
                          $
                          —
                          
                          
                          $
                          5,193
                          
                          
                          $
                          16,204Auction
      rate securities included in marketable securities
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          349
                          
                          
                          
                          349Total
      marketable securities
                          
                          $
                          11,011
                          
                          
                          $
                          —
                          
                          
                          $
                          5,542
                          
                          
                          $
                          16,553Liabilities:Derivative
      contracts
                          
                          $
                          610
                          
                          
                          $
                          —
                          
                          
                          $
                          2,472
                          
                          
                          $
                          3,082
 ________________
 (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 investments in marketable securities are considered “available for
sale.” The Company’s marketable securities at April 30, 2009 included auction
rate securities with a par value of $14.3 million. The underlying asset for
these securities is preferred stock of the Federal National Mortgage Association
(“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”).
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 the guidance in
Emerging Issues Task Force (“EITF”) Topic D-46, Accounting for Limited Partnership
Investments and EITF 03-16, Accounting for Investments 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, (2) an interest rate swap to achieve fixed rate
debt, which is classified as Level 3, and (3) an embedded derivative in a
structured note that must be bifurcated, which is classified as Level
3.
  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) at April 30, 2009:
  Three
      Months Ended
                              April 30,
      2009
                            
                            
                            Nine
      Months Ended
                              April 30,
      2009Assets
                            
                            
                            Liabilities
                            
                            
                            Assets
                            
                            
                            Liabilities(in
      thousands)Balance,
      beginning of period
                            
                            $
                            5,619
                            
                            
                            $
                            (2,843
                            )
                            
                            $
                            53,265
                            
                            
                            $
                            (155
                            )Total
      gains (losses) (realized or unrealized):Included
      in earnings in “Other expense, net”
                            
                            
                            (100
                            )
                            
                            
                            371
                            
                            
                            
                            (8,671
                            )
                            
                            
                            (2,317
                            )Included
      in other comprehensive loss
                            
                            
                            23
                            
                            
                            
                            —
                            
                            
                            
                            3,028
                            
                            
                            
                            —Purchases,
      sales, issuances and settlements
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (42,080
                            )
                            
                            
                            —Transfers
      in (out) of Level 3
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Balance,
      end of period
                            
                            $
                            5,542
                            
                            
                            $
                            (2,472
                            )
                            
                            $
                            5,542
                            
                            
                            $
                            (2,472
                            )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
                            
                            $
                            (100
                            )
                            
                            $
                            371
                            
                            
                            $
                            (6,750
                            )
                            
                            $
                            (2,317
                            )
 
 Effective
August 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of SFAS 115. SFAS
159 permits companies to choose to measure selected financial assets and
liabilities at fair value. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
SFAS 159 does not eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair value measurements
included in SFAS 157 and SFAS 107, Disclosures about Fair Value of
Financial Instruments. The Company chose not to elect the fair value
option for the valuation of any of its eligible assets or liabilities, therefore
the adoption of SFAS 159 had no impact on the Company’s financial position,
results of operations or cash flows.
  8
 Table of Contents
  Note
3—Arbitration Award Income
  In
November 2007, the Company’s Net2Phone Cable Telephony subsidiary, which is
included in its IDT Telecom Platform Services segment, was awarded approximately
€23 million, plus interest from November 2005, in an arbitration proceeding
against Altice One S.A. and certain of its affiliates. The arbitration
proceeding related to Altice’s termination of cable telephony license agreements
Net2Phone Cable Telephony had entered into in November 2004. The Company
recorded a gain of $40.0 million for this arbitration award, including accrued
interest, in the first quarter of fiscal 2008. The Company received
€29.3 million in March 2008, which includes interest from November
2005.
  Note
4—Discontinued Operations
  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 purchase price was received on
February 2, 2009. 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. IDT
Carmel recognized a loss of $34.3 million in the second quarter of fiscal 2009
in connection with the sale of its debt portfolios.
  Revenues,
loss before income taxes and net loss of IDT Carmel, which is included in
discontinued operations, are as follows:
  Three
      Months Ended
                                April
      30,
                              
                              
                              Nine
      Months Ended
                                April
      30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(in
      thousands)Revenues
                              
                              $
                              932
                              
                              
                              $
                              12,513
                              
                              
                              $
                              16,534
                              
                              
                              $
                              34,542(Loss)
      income before income taxes
                              
                              $
                              (3,039
                              )
                              
                              $
                              1,830
                              
                              
                              $
                              (38,867
                              )
                              
                              $
                              (8,335
                              )Net
      (loss) income
                              
                              $
                              (3,039
                              )
                              
                              $
                              1,844
                              
                              
                              $
                              (38,867
                              )
                              
                              $
                              (8,640
                              )
 
 The
assets and liabilities of IDT Carmel included in discontinued operations consist
of the following:
  April
      30,
                                2009
                              
                              
                              July 31,
                                2008(in
      thousands)AssetsCash
      and cash equivalents
                              
                              $
                              224
                              
                              
                              $
                              1,734Purchased
      debt portfolios
                              
                              
                              24
                              
                              
                              
                              63,059Equipment,
      net
                              
                              
                              —
                              
                              
                              
                              1,987Other
                              
                              
                              106
                              
                              
                              
                              1,422Assets
      of discontinued operations
                              
                              $
                              354
                              
                              
                              $
                              68,202LiabilitiesTrade
      accounts payable
                              
                              $
                              2
                              
                              
                              $
                              2Accrued
      expenses
                              
                              
                              1,730
                              
                              
                              
                              954Other
      liabilities
                              
                              
                              —
                              
                              
                              
                              516Liabilities
      of discontinued operations
                              
                              $
                              1,732
                              
                              
                              $
                              1,472
 
 IDT
Entertainment
  In the
first quarter of fiscal 2007, the Company completed the sale of IDT
Entertainment to Liberty Media Corporation. 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,
which is included in “Other long-term liabilities” in the condensed consolidated
balance sheet. Loss on sale of discontinued operations in the three and nine
months ended April 30, 2008 of $0.5 million and $4.5 million, respectively,
included compensation, taxes and the costs of a lawsuit, all of which arose from
and were directly related to the operations of IDT Entertainment prior to its
disposal.
  9
 Table of Contents
  Note
5—Investment in American Shale Oil, LLC
  American
Shale Oil Corporation (“AMSO”) was formed as a wholly-owned subsidiary of the
Company in February 2008. In April 2008, AMSO 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, bringing the
total interest then held by the Company to approximately 90%.
  AMSO, LLC
is one of only 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 other holders consist of Shell Frontier Oil and Gas, Inc. (three
leases) and Chevron U.S.A., Inc. 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 E&P SCR/Recherche & Development,
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 capital
requirements going forward. The Company recognized a gain of $2.6 million in the
third quarter of fiscal 2009 in connection with the sale. While AMSO will
operate the project during the RD&D phase, Total will provide a majority of
the funding during this phase of the project, 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. Total’s indirect corporate parent, Total S.A., is
the world’s fifth largest integrated oil and gas company.
  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. Pursuant to FASB Interpretation 46(R),
Consolidation of Variable
Interest Entities, 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.
  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.
  (in
      thousands)Balance,
      March 2, 2009
                        
                        $
                        (65
                        )Capital
      contributions
                        
                        
                        904Equity
      in net loss of AMSO, LLC
                        
                        
                        (192
                        )Balance,
      April 30, 2009
                        
                        $
                        647
 
 AMSO has
committed to a total investment of $10.0 million in AMSO, LLC, subject to
certain exceptions where the amount could be greater. At April 30, 2009, subject
to certain exceptions, the Company’s minimum funding commitment as a result of
its investment in AMSO, LLC is $8.3 million.
   10
 Table of Contents
  Summarized
unaudited balance sheet data of AMSO, LLC is as follows:
  April
      30,
                              2009
                            
                            
                            July 31,
                              2008(in
      thousands)AssetsCash
      and cash equivalents
                            
                            $
                            3,777
                            
                            
                            $
                            679Other
      current assets
                            
                            
                            441
                            
                            
                            
                            —Equipment,
      net
                            
                            
                            8
                            
                            
                            
                            —Total
      assets
                            
                            $
                            4,226
                            
                            
                            $
                            679Liabilities
      and members’ interestsCurrent
      liabilities
                            
                            $
                            794
                            
                            
                            $
                            105Other
      liabilities
                            
                            
                            —
                            
                            
                            
                            1,586Members’
      interests
                            
                            
                            3,432
                            
                            
                            
                            (1,012
                            )Total
      liabilities and members’ interests
                            
                            $
                            4,226
                            
                            
                            $
                            679
 
 Summarized
unaudited statement of operations data of AMSO, LLC is as follows:
  Three
      Months Ended
                                April
      30,
                              
                              
                              Nine
      Months Ended
                                April
      30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(In
      thousands)Revenues
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              —Costs
      and expenses:Research
      and development
                              
                              
                              1,086
                              
                              
                              
                              548
                              
                              
                              
                              4,113
                              
                              
                              
                              548Total
      costs and expenses
                              
                              
                              1,086
                              
                              
                              
                              548
                              
                              
                              
                              4,113
                              
                              
                              
                              548Loss
      from operations
                              
                              
                              (1,086
                              )
                              
                              
                              (548
                              )
                              
                              
                              (4,113
                              )
                              
                              
                              (548
                              )Other
      income
                              
                              
                              2
                              
                              
                              
                              —
                              
                              
                              
                              2
                              
                              
                              
                              —Net
      loss
                              
                              $
                              (1,084
                              )
                              
                              $
                              (548
                              )
                              
                              $
                              (4,111
                              )
                              
                              $
                              (548
                              )
 
 Note
6—Stockholders’ Equity
  On
December 17, 2008, the Company’s Board of Directors approved, authorized
and recommended to the Company’s stockholders to amend and restate the Company’s
Restated Certificate of Incorporation to affect a one-for-three reverse split of
each of the outstanding shares of the Company’s common stock, Class A
common stock and Class B common stock. On January 20, 2009,
Mr. Howard S. Jonas, the Company’s Chairman of the Board, and his
affiliates, the record holders of shares representing a majority of the
aggregate voting power of the Company’s outstanding capital stock, delivered to
the Company a written consent in lieu of a special meeting of stockholders
representing approximately 71% of the voting power of the Company’s stock,
approving the amended Restated Certificate of Incorporation thereby approving
the one-for-three reverse stock split. The one-for-three reverse stock split was
effective on February 24, 2009. The one-for-three reverse stock split was
intended to satisfy compliance with the NYSE’s price criteria for continued
listing. All share, weighted average share and per share amounts, as well as
stock option, non-vested restricted stock and contingently issuable share
amounts, in the accompanying condensed consolidated financial statements and
notes thereto have been retroactively adjusted for all periods presented to
reflect the one-for-three reverse stock split. The one-for-three reverse stock
split did not affect the number of authorized shares or the par value per
share.
  On
October 31, 2008, the Company entered into an Amended and Restated
Employment Agreement with Mr. Jonas. 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. The
restricted shares were granted on October 31, 2008 pursuant to the
Company’s 2005 Stock Option and Incentive Plan. The 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 granted on October 31, 2008 were
included in the shares issued and outstanding at April 30, 2009. 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 $0.3 million of the compensation cost related to
this agreement in the three and nine months ended April 30, 2009,
respectively.
  11
 Table of Contents
  On
November 5, 2008, the Company and Mr. James A. Courter, the
Company’s Vice Chairman and Chief Executive Officer, entered into an amendment
to Mr. Courter’s employment agreement. Pursuant to the amendment,
Mr. Courter was granted 0.4 million restricted shares of Class B
common stock in lieu of a cash base salary from January 1, 2009 until
October 21, 2009. The restricted shares are scheduled to vest on
October 21, 2009, the last day of the term under the amended employment
agreement. Pursuant to the amendment, all of the restricted shares paid to
Mr. Courter under the amendment automatically vest in the event of
(i) a change in control of the Company; (ii) Mr. Courter’s death;
or (iii) if Mr. Courter is terminated without cause or if he
terminates his employment for good reason as defined by the amendment. A pro
rata portion of the restricted shares will vest in the event of termination for
cause. The restricted shares were granted on November 5, 2008 pursuant to
the Company’s 2005 Stock Option and Incentive Plan. The 0.4 million
restricted shares of the Company’s Class B common stock granted on
November 5, 2008 were included in the shares issued and outstanding at
April 30, 2009. Total unrecognized compensation cost on the grant date was $0.8
million. The unrecognized compensation cost is expected to be recognized from
January 1, 2009 through October 21, 2009. The Company recognized $0.2
million and $0.3 million of the compensation cost related to this agreement in
the three and nine months ended April 30, 2009, 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 nine months ended April 30, 2009,
the Company repurchased an aggregate of 2.4 million shares of Class B
common stock and 1.4 million shares of common stock for an aggregate
purchase price of $6.5 million. In the nine months ended April 30, 2008, the
Company repurchased an aggregate of 1.8 million shares of Class B common
stock and 0.2 million shares of common stock for an aggregate purchase
price of $44.5 million. As of April 30, 2009, 7.0 million shares remained
available for repurchase under the stock repurchase program.
  Note
7—Earnings Per Share
  The
Company computes earnings per share under the provisions of SFAS No. 128,
Earnings per Share,
whereby basic earnings per share is computed by dividing net income (loss)
attributable to all classes of common shareholders by the weighted average
number of shares of all classes of common stock outstanding during the
applicable period. Diluted earnings per share is determined 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 and
nine months ended April 30, 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 April
      30,2009
                            
                            
                            2008(in
      thousands)Stock
      options
                            
                            
                            2,029
                            
                            
                            
                            2,502Non-vested
      restricted stock
                            
                            
                            2,513
                            
                            
                            
                            152Contingently
      issuable shares
                            
                            
                            —
                            
                            
                            
                            56Total
                            
                            
                            4,542
                            
                            
                            
                            2,710
 
 Note
8—Comprehensive Loss
  The
Company’s comprehensive loss consists of the following:
  Three
      Months Ended
                            April
      30,
                          
                          
                          Nine
      Months Ended
                            April
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(in
      thousands)Net
      loss
                          
                          $
                          (63,436
                          )
                          
                          $
                          (82,211
                          )
                          
                          $
                          (162,680
                          )
                          
                          $
                          (137,900
                          )Foreign
      currency translation adjustments
                          
                          
                          1,060
                          
                          
                          
                          5,154
                          
                          
                          
                          (13,005
                          )
                          
                          
                          (2,811
                          )Unrealized
      gains (loss) on available-for-sale securities
                          
                          
                          35
                          
                          
                          
                          4,541
                          
                          
                          
                          3,033
                          
                          
                          
                          1,605Comprehensive
      loss
                          
                          $
                          (62,341
                          )
                          
                          $
                          (72,516
                          )
                          
                          $
                          (172,652
                          )
                          
                          $
                          (139,106
                          )
  12
 Table of Contents
  Note
9—Impairments
  The
Company’s impairments by business segment consist of the following:
  Three Months Ended
                            April
      30,
                          
                          
                          Nine
      Months Ended
                            April
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(in
      thousands)Telecom
      Platform Services
                          
                          $
                          29,039
                          
                          
                          $
                          54
                          
                          
                          $
                          29,052
                          
                          
                          $
                          242Consumer
      Phone Services
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —IDT
      Energy
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —IDT
      Capital
                          
                          
                          33,081
                          
                          
                          
                          —
                          
                          
                          
                          43,709
                          
                          
                          
                          20Corporate
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Total
                          
                          $
                          62,120
                          
                          
                          $
                          54
                          
                          
                          $
                          72,761
                          
                          
                          $
                          262
 
 The
Company recorded aggregate impairment charges of $72.8 million in the nine
months ended April 30, 2009 of which $61.7 million related to goodwill, $5.3
million related to FCC licenses and $5.8 million related to other assets. In the
second quarter of fiscal 2009, the following events and circumstances indicated
that the fair value of certain of the Company’s reporting units may be below
their carrying value: (1) a significant adverse change in the business
climate, (2) operating losses of reporting units, (3) significant
revisions to internal forecasts, and (4) plans to restructure operations
including reductions in workforce. The Company measured the fair value of its
reporting units by discounting their estimated future cash flows using an
appropriate discount rate. The carrying value including goodwill exceeded the
estimated fair value of the following reporting units: IDW Publishing, CTM Media
Group, and WMET radio, all of which are units of IDT Capital, and Rechargeable,
which is a unit of Telecom Platform Services. The Company therefore performed
additional steps for these reporting units to determine whether an impairment of
goodwill was required. As a result of this analysis, in the nine months ended
April 30, 2009, the Company recorded preliminary goodwill impairment, which is
subject to adjustment, of $1.8 million in IDW Publishing, $29.7 million in CTM
Media Group, $1.2 million in WMET and $29.0 million in Rechargeable, which
reduced the carrying amount of the goodwill in each of these reporting units to
zero. The Company recorded the preliminary amounts because it was probable that
goodwill was impaired, and the amount of impairment could be reasonably
estimated. On April 30, 2009, the Company’s remaining goodwill was $12.4
million. Calculating the fair value of the reporting units, and allocating the
estimated fair value to all of the tangible assets, intangible assets and
liabilities, requires significant estimates and assumptions. Should these
estimates or assumptions prove to be incorrect, the Company may record
additional goodwill impairment or adjust its preliminary impairment in future
periods.
  IDT
Spectrum, which is a unit of IDT Capital, recorded impairment in the nine months
ended April 30, 2009 of $5.3 million, which reduced the carrying value of its
FCC licenses to zero. The events and circumstances in the second quarter of
fiscal 2009 described above indicated that the FCC licenses may be impaired. The
Company estimated that these FCC licenses had nominal value based on continuing
operating losses and projected losses for the foreseeable future.
  The
Company recorded an impairment of $3.5 million in the nine months ended April
30, 2009 which reduced the carrying value of IDT Global Israel’s building in
Israel. The Company retained exclusive control over the sale of this building
after the Company disposed of 80% of the issued and outstanding shares of IDT
Global Israel in the fourth quarter of fiscal 2008. Once the building is sold,
the Company will receive the net proceeds of the sale after the repayment of the
obligations secured by the building. At April 30, 2009, the revised estimated
sales price of the building net of costs to sell of $12.7 million was included
in “Other current assets” and the mortgage balance of $6.0 million was included
in “Other current liabilities”.
  As a
result of the Company’s conclusion that an interim impairment test of goodwill
was required during the second quarter of fiscal 2009, the Company also assessed
the recoverability of certain of its long-lived assets in accordance with SFAS
No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The assessment of
long-lived assets was based on projected undiscounted future cash flows of the
long-lived asset groups compared to their carrying values. The Company’s cash
flow estimates were derived from the annual Company wide planning process and
interim forecasting. The Company believes that its procedures for projecting
future cash flows are reasonable and consistent with market conditions at the
time of estimation. As a result of the Company’s assessment under SFAS 144, as
of April 30, 2009, the Company recorded aggregate impairments of $2.3 million
related to certain leasehold interests.
  13
 Table of Contents
  Note
10—Restructuring Charges
  The
Company’s restructuring charges by business segment consist of the
following:
  Three Months Ended
                            April
      30,
                          
                          
                          Nine
      Months Ended
                            April
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(in
      thousands)Telecom
      Platform Services
                          
                          $
                          301
                          
                          
                          $
                          11,432
                          
                          
                          $
                          4,191
                          
                          
                          $
                          13,438Consumer
      Phone Services
                          
                          
                          —
                          
                          
                          
                          482
                          
                          
                          
                          —
                          
                          
                          
                          542IDT
      Energy
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          15
                          
                          
                          
                          89IDT
      Capital
                          
                          
                          40
                          
                          
                          
                          29
                          
                          
                          
                          1,623
                          
                          
                          
                          856Corporate
                          
                          
                          268
                          
                          
                          
                          4,510
                          
                          
                          
                          2,609
                          
                          
                          
                          5,502Total
                          
                          $
                          609
                          
                          
                          $
                          16,453
                          
                          
                          $
                          8,438
                          
                          
                          $
                          20,427
 
 The
restructuring charges in the three and nine months ended April 30, 2009 and 2008
consisted primarily of severance related to a company-wide cost savings program
and reduction in force. As of April 30, 2009, these programs resulted in the
termination of approximately 1,420 employees since the third quarter of fiscal
2006. As of April 30, 2009, the Company had a total of approximately 1,480
employees, of which approximately 1,060 are located in the United States and
approximately 420 are located at the Company’s international operations. The
restructuring charges in the nine months ended April 30, 2009 also included
costs for the shutdown or consolidation of certain facilities of $0.7 million in
Corporate and $0.8 million in IDT Telecom. In the first quarter of fiscal 2009,
IDT Telecom reversed accrued severance of $2.6 million as a result of
modifications to retention and/or severance agreements with certain employees.
In the first quarter of fiscal 2008, IDT Spectrum reversed $0.4 million of
restructuring charges recorded in fiscal 2006 for a contract
termination.
  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,
                            2008
                          
                          
                          Charged to
                            Expense
                          
                          
                          Payments
                          
                          
                          Balance at
                            April
      30,
                            2009(in
      thousands)IDT
      Telecom
                          
                          $
                          10,854
                          
                          
                          $
                          4,191
                          
                          
                          $
                          (11,471
                          )
                          
                          $
                          3,574IDT
      Energy
                          
                          
                          —
                          
                          
                          
                          15
                          
                          
                          
                          (15
                          )
                          
                          
                          —IDT
      Capital
                          
                          
                          526
                          
                          
                          
                          1,623
                          
                          
                          
                          (2,132
                          )
                          
                          
                          17Corporate
                          
                          
                          7,076
                          
                          
                          
                          2,609
                          
                          
                          
                          (5,461
                          )
                          
                          
                          4,224Total
                          
                          $
                          18,456
                          
                          
                          $
                          8,438
                          
                          
                          $
                          (19,079
                          )
                          
                          $
                          7,815
 
 Note
11—Business Segment Information
  The
Company has the following three reportable business segments: Telecom Platform
Services, Consumer Phone Services and IDT Energy. All other operating segments
that are not reportable individually are collectively called IDT Capital.
Telecom Platform Services and Consumer Phone Services comprise the IDT Telecom
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 includes wholesale carrier services provided
to affiliates as well as other telecommunications companies. In addition,
Telecom Platform Services markets and sells prepaid and rechargeable calling
cards, prepaid wireless phone services and cable telephony 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. IDT Capital consists of the
IDT Local Media businesses (principally CTM Media Group, WMET radio and IDW
Publishing), Zedge (which provides a web-based, worldwide destination for free,
user-generated mobile content distribution and sharing), Alternative Energy
(which consists of AMSO, the Company’s U.S. oil shale initiative, and Israel
Energy Initiatives, Ltd., the Company’s Israeli alternative energy venture),
certain real estate investments and other smaller businesses. Corporate costs
include certain services, such as corporate executive 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.
  14
 Table of Contents
  In fiscal
2008, the telecommunications termination network services and costs incurred by
IDT Telecom on behalf of all of its segments were treated as belonging to the
Wholesale Telecommunications Services segment, which then recovered a portion of
such services and costs, plus an agreed-upon mark-up profit, through an
inter-segment billing process. IDT Telecom’s senior management changed in the
second half of fiscal 2008, and began to treat such termination network services
and costs as a pass-through shared cost to all its segments rather than a profit
center within Wholesale Telecommunications Services. As such, beginning in the
first quarter of fiscal 2009, Wholesale Telecommunications Services ceased
charging for the telecommunications services it provides to other segments, and
the allocation of such services and related costs within IDT Telecom was revised
accordingly. Beginning in the second quarter of fiscal 2009, the Prepaid
Products segment and the Wholesale Telecommunications Services segment were
combined into the Telecom Platform Services segment, and consumer phone services
outside the United States were transferred from the Consumer Phone Services
segment to Telecom Platform Services. The changes in the second quarter of
fiscal 2009 reflect the overlap in the methods used to provide consumer phone
services outside the United States, prepaid products and wholesale
telecommunications services, as well as the way the operating results are
reported and reviewed by the Company’s chief operating decision maker. In
addition, in the first quarter of fiscal 2009, certain real estate investments
that were historically included in Corporate were transferred to IDT Capital,
and IDW Publishing was transferred from the IDT Internet Mobile Group in IDT
Capital to IDT Local Media in IDT Capital. To the extent possible, comparative
historical results have been reclassified and restated as if the fiscal 2009
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.
  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
                    
                    
                    IDT
                      Capital
                    
                    
                    Corporate
                    
                    
                    TotalThree Months Ended
      April 30, 2009Revenues
                    
                    $
                    299,595
                    
                    
                    $
                    12,577
                    
                    
                    $
                    66,669
                    
                    
                    $
                    10,148
                    
                    
                    $
                    —
                    
                    
                    $
                    388,989Operating
      (loss) income
                    
                    
                    (33,012
                    )
                    
                    
                    3,588
                    
                    
                    
                    12,819
                    
                    
                    
                    (34,278
                    )
                    
                    
                    (6,388
                    )
                    
                    
                    (57,271
                    )Impairments
                    
                    
                    29,039
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    33,081
                    
                    
                    
                    —
                    
                    
                    
                    62,120Restructuring
      charges
                    
                    
                    301
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    40
                    
                    
                    
                    268
                    
                    
                    
                    609Three Months Ended
      April 30, 2008Revenues
                    
                    $
                    342,403
                    
                    
                    $
                    18,965
                    
                    
                    $
                    66,290
                    
                    
                    $
                    13,077
                    
                    
                    $
                    —
                    
                    
                    $
                    440,735Operating
      (loss) income
                    
                    
                    (35,443
                    )
                    
                    
                    8,197
                    
                    
                    
                    850
                    
                    
                    
                    (17,724
                    )
                    
                    
                    (28,278
                    )
                    
                    
                    (72,398
                    )Impairments
                    
                    
                    54
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    54Restructuring
      charges
                    
                    
                    11,432
                    
                    
                    
                    482
                    
                    
                    
                    —
                    
                    
                    
                    29
                    
                    
                    
                    4,510
                    
                    
                    
                    16,453Nine Months Ended
      April 30, 2009Revenues
                    
                    $
                    956,132
                    
                    
                    $
                    42,117
                    
                    
                    $
                    227,720
                    
                    
                    $
                    32,812
                    
                    
                    $
                    —
                    
                    
                    $
                    1,258,781Operating
      (loss) income
                    
                    
                    (49,602
                    )
                    
                    
                    15,312
                    
                    
                    
                    40,363
                    
                    
                    
                    (57,463
                    )
                    
                    
                    (26,443
                    )
                    
                    
                    (77,833
                    )Impairments
                    
                    
                    29,052
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    43,709
                    
                    
                    
                    —
                    
                    
                    
                    72,761Restructuring
      charges
                    
                    
                    4,191
                    
                    
                    
                    —
                    
                    
                    
                    15
                    
                    
                    
                    1,623
                    
                    
                    
                    2,609
                    
                    
                    
                    8,438Nine Months Ended
      April 30, 2008Revenues
                    
                    $
                    1,087,327
                    
                    
                    $
                    63,648
                    
                    
                    $
                    173,434
                    
                    
                    $
                    39,088
                    
                    
                    $
                    —
                    
                    
                    $
                    1,363,497Operating
      (loss) income
                    
                    
                    (23,428
                    )
                    
                    
                    18,448
                    
                    
                    
                    4,459
                    
                    
                    
                    (45,579
                    )
                    
                    
                    (64,623
                    )
                    
                    
                    (110,723
                    )Impairments
                    
                    
                    242
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    20
                    
                    
                    
                    —
                    
                    
                    
                    262Restructuring
      charges
                    
                    
                    13,438
                    
                    
                    
                    542
                    
                    
                    
                    89
                    
                    
                    
                    856
                    
                    
                    
                    5,502
                    
                    
                    
                    20,427
 
 IDT
Capital’s loss from operations in the three and nine months ended April 30, 2009
is net of a gain of $2.6 million from the sale of a 50% interest in AMSO, LLC
(see Note 5). The Telecom Platform Services segment’s loss from operations in
the nine months ended April 30, 2008 is net of arbitration award income of $40.0
million (see Note 3).
  Note
12—Derivative Instruments
  The
Company is exposed to certain risks relating to its ongoing business operations.
The primary risks managed by 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 is used to
achieve a fixed interest rate on a portion of the Company’s variable-rate debt.
Finally, one of the Company’s marketable securities is a structured note that
contains an embedded derivative feature.
  15
 Table of Contents
  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 April 30, 2009, IDT Energy had the following
outstanding forward contracts:
  Commodity
                          
                          Settlement
      Date
                          
                          VolumeElectricity
                          
                          June
      2009
                          
                          8,800
      MW hElectricity
                          
                          September
      2009
                          
                          8,400
      MW hNatural
      gas
                          
                          August
      2009
                          
                          77,500
      mmbtuNatural
      gas
                          
                          January
      2010
                          
                          77,500
      mmbtuNatural
      gas
                          
                          February
      2010
                          
                          70,000
      mmbtuNatural
      gas
                          
                          March
      2010
                          
                          77,500
      mmbtu
 
 The
Company has an interest rate swap related to the variable rate obligations
secured by the IDT Global Israel building. As of April 30, 2009, the total
notional amount of the Company’s receive variable/pay fixed interest rate swap
was $6.0 million.
  The
structured note included in marketable securities as of April 30, 2009 has a par
value of $5.0 million and matures in November 2009.
  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
                                  
                                  April
      30, 2009
                                  
                                  
                                  July
      31, 2008(in
      thousands)Derivatives
      designated as hedging instruments under SFAS 133:Energy
      contracts
                                  
                                  Other
      current liabilities
                                  
                                  $
                                  610
                                  
                                  
                                  $
                                  —Interest
      rate contracts
                                  
                                  Other
      current liabilities
                                  
                                  
                                  321
                                  
                                  
                                  
                                  —Total
      derivatives designated as hedging
                                    instruments
      under SFAS 133
                                  
                                  
                                  
                                  
                                  931
                                  
                                  
                                  
                                  —Derivatives
      not designated as hedging instruments under SFAS 133:Structured
      note embedded derivative
                                  
                                  Other
      current liabilities
                                  
                                  
                                  2,151
                                  
                                  
                                  
                                  —Total
      derivatives not designated ashedging
                                    instruments
      under SFAS 133
                                  
                                  
                                  
                                  
                                  2,151
                                  
                                  
                                  
                                  —Total
      liability derivatives
                                  
                                  
                                  
                                  $
                                  3,082
                                  
                                  
                                  $
                                  —
 
 The
effects of derivative instruments on the condensed consolidated statements of
operations were as follows:
  Amount
      of Gain (Loss) Recognized on DerivativesThree
      Months Ended
                              April
      30,
                            
                            
                            Nine
      Months Ended
                              April
      30,Derivatives in SFAS 133 Fair
      Value Hedging Relationships
                            Location
      of Gain (Loss) Recognized on Derivatives
                            
                            2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(in
      thousands)Energy
      contracts
                            Direct
      cost of revenues
                            
                            $
                            (290
                            )
                            
                            $
                            21
                            
                            
                            $
                            (1,067
                            )
                            
                            $
                            665Interest
      rate contracts
                            Other
      income (expense), net
                            
                            
                            53
                            
                            
                            
                            —
                            
                            
                            
                            (321
                            )
                            
                            
                            —Total
                            
                            
                            $
                            (237
                            )
                            
                            $
                            21
                            
                            
                            $
                            (1,388
                            )
                            
                            $
                            665
 
 Amount
      of Gain (Loss) Recognized on DerivativesThree
      Months Ended
                              April
      30,
                            
                            
                            Nine
      Months Ended
                              April
      30,Derivatives Not Designated as
      Hedging Instruments Under SFAS 133
                            Location
      of Gain (Loss) Recognized on Derivatives
                            
                            2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(in
      thousands)Structured
      note embedded derivative
                            Other
      income (expense), net
                            
                            $
                            318
                            
                            
                            $
                            —
                            
                            
                            $
                            (1,996
                            )
                            
                            $
                            —Total
                            
                            
                            $
                            318
                            
                            
                            $
                            —
                            
                            
                            $
                            (1,996
                            )
                            
                            $
                            —
 
 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.
  16
 Table of Contents
  Note
13—Legal Proceedings
  On May
18, 2009, a subsidiary of the Company was served with notice of a complaint
(which was subsequently amended) filed on May 15, 2009 by T-Mobile USA, Inc.
(“T-Mobile”) against 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 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
August 27, 2003, Aerotel, Ltd., Aerotel U.S.A., and Aerotel U.S.A., LLC
(“Aerotel”) filed a complaint against the Company in the United States District
Court, Southern District of New York, seeking damages for alleged infringement
of a patent. The parties reached a settlement and pursuant to a stipulation of
dismissal, all claims and counterclaims have been dismissed. The settlement
provided for a payment of $15 million in cash to Aerotel, which the Company paid
in the first quarter of fiscal 2008. The settlement also required the Company to
make available to Aerotel calling cards or PINs over time with potential
termination costs of up to $15 million, subject to certain other conditions. In
connection with this settlement, the Company accrued an expense of $24 million
in the fourth quarter of fiscal 2007. On May 13, 2008, Aerotel, Ltd. filed
a complaint against the Company in the United States District Court Southern
District of New York related to a dispute concerning the settlement agreement
between the Company and Aerotel. The complaint alleges Breach of Contract,
Anticipatory Breach, and Breach of Covenant of Good Faith and Fair Dealing.
Aerotel, Ltd. is seeking damages in the amount of at least $30 million. On June
8, 2009, the parties appeared for a settlement conference before the Court and
reached a verbal settlement in principle, the terms of which are being
finalized. In connection with this matter, the Company accrued an additional
expense of $6 million in the fourth quarter of fiscal 2008.
  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. The parties completed pre-trial
discovery and each party filed motions for summary judgment. On July 11,
2007, the Court granted the Company’s motion for partial summary judgment on
liability, and granted its motion for summary judgment on Tyco’s counterclaims.
On November 21, 2007, Tyco filed a notice of appeal of the order granting
the Company’s motion for summary judgment on liability. On January 24,
2008, the Appellate Court granted a motion made by Tyco and stayed proceedings
in the trial court until the appeal is decided. On August 19, 2008, the
Appellate Division issued a decision and order reversing the trial court’s grant
of partial summary judgment on the issue of liability to the Company and granted
the portion of defendants’ cross motion seeking summary judgment dismissing the
complaint and remanded the matter to the Supreme Court for further proceedings.
On September 18, 2008, the Company filed its request for reargument, or in
the alternative, for leave to appeal to the Court of Appeals. On
December 30, 2008, the Appellate Division granted the Company’s request for
leave to appeal to the Court of Appeals. On May 18, 2009, the parties submitted
the briefs on that appeal and oral argument is scheduled for September 15,
2009.
  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. Discovery is
continuing.
  17
 Table of Contents
  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 hearing on the motion to stay is scheduled for
July 13, 2009.  At or after the claim construction hearing (which has
yet to be scheduled), the Court will set a summary judgment briefing schedule.
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
the Company’s 51%-owned U.S. calling card distribution partnership, Union
Telecard Alliance, LLC (“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 three 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, and scheduled the
trial for October 2009. On May 19, 2009, the parties participated in
non-binding mediation, which was not successful. The parties are now actively
engaged in pre-trial discovery.
  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
had settled with five of the defendant groups. The Company is continuing to
pursue the case against the non-settling defendants, which on February 11,
2009, filed motions for summary judgment, which the Company opposed. The trial
is expected to begin on October 5, 2009.
  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 legal proceedings to which the Company
is a party, whether discussed above or otherwise, will have a material adverse
effect on the Company’s results of operations, cash flows or its financial
condition.
  Note
14—Commitments and Contingencies
  The
Company had purchase commitments and other obligations of $2.1 million as of
April 30, 2009.
  As a
result of an IRS audit of the Company’s federal tax returns for fiscal years
2001, 2002, 2003 and 2004, the Company owed approximately $75 million in taxes
for fiscal 2001, approximately $1 million for adjustments carried forward to
fiscal 2005 and 2006, and $39.5 million in interest. In connection therewith,
the Company paid $80.0 million of the amount owed between July 2008 and January
2009. On January 27, 2009, the Company entered into a modified installment
agreement with the IRS, whereby it agreed to pay the remaining amounts owed to
the IRS for fiscal years 2001 – 2004 by June 2009. During the third quarter
of fiscal 2009, the Company paid $25.0 million to the IRS on its
outstanding balance. By June 15, 2009, the Company will have paid an
additional $13.4 million to fully satisfy its obligation under the modified
agreement. The final payment may be reduced if the IRS waives the penalties. In
December 2008, the IRS commenced an audit of the Company’s federal tax returns
for fiscal years 2005, 2006 and 2007. In May 2009, the IRS assessed a liability
of $1.2 million for fiscal year 2005 which represents the approximately $1
million previously agreed to plus interest. In addition, an audit in the
Netherlands of a subsidiary of the Company was completed in October 2008 that
resulted in a settlement of $4.4 million including interest, which was paid in
December 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.
  18
 Table of Contents
  As of
April 30, 2009, the Company had letters of credit outstanding totaling $65.8
million, the majority of which expire by April 30, 2010. As of April 30, 2009
and July 31, 2008, cash and cash equivalents of $58.7 million and $4.1
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 April 30,
2009 and July 31, 2008, marketable securities of $5.2 million and $78.7
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 April 30, 2009 and
July 31, 2008 were primarily collateral for IDT Energy’s purchases of
natural gas through wholesale bilateral contracts with suppliers and various
utility companies and electric capacity, energy and ancillary services through
the wholesale markets, as well as to secure mortgage repayments on various
buildings.
  As of
April 30, 2009 and July 31, 2008, “Cash and cash equivalents” in the Company’s
condensed consolidated balance sheets included approximately $10 million and $4
million, respectively, and “Marketable securities” included nil and
approximately $6 million, respectively, that was held pursuant to regulatory
requirements related to the Company’s European prepaid payment services
business.
  On
July 10, 2008, the Federal Communications Commission (“FCC”) released a
Notice of Apparent Liability (“NAL”) of $1.3 million related to one of the
Company’s international telecommunications service agreements. The NAL claims
that the Company violated section 220 of the Telecom Act, and section 43.51 of
the FCC’s rules by willfully and repeatedly failing to file with the FCC, within
thirty days of execution, a copy of an agreement with Telecommunications D’Haiti
S.A.M. and each of four amendments thereto governing, among other things, the
exchange of services, routing of traffic, accounting rates, and division of
tolls on the U.S.-Haiti route. On October 29, 2008, the FCC released an
order adopting an October 29, 2008 Consent Decree entered into
between the Company and the FCC’s Enforcement Bureau resolving the
matter. As part of the Consent Decree, in November 2008 the Company made a
voluntary contribution to the United States Treasury in the amount of $0.4
million and will further develop its FCC compliance plan.
  The
Company is currently subject to audits by different European taxing authorities,
including audits relating to value added tax (“VAT”) that the Company has not
collected for calling cards sold to distributors who, in turn, resell such cards
in various jurisdictions in Europe. On September 4, 2008, a Swedish court
granted an application made by the Swedish Tax Agency to seize SEK
100 million ($12.1 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 ($14.4 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. The Company intends to appeal
the re-assessment and request a suspension of the payment obligation until the
matter is addressed by the appropriate court. As the Company intends to
challenge the re-assessment, it cannot be certain of the ultimate outcome.
Imposition of assessments as a result of tax and regulatory audits could have an
adverse affect on the Company’s results of operations, cash flows and financial
condition.
  The
Company’s distribution agreement with Union Telecard Alliance, LLC, which
distributes most of the Company’s prepaid calling cards in the United States,
expired on April 24, 2009. The Company is currently distributing prepaid
calling cards and other products through Union Telecard Alliance, LLC on a
month-to-month basis.
  Note
15—Related Party Transaction
  On
September 23, 2008, the Company 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 the Company. The Company records the effect of
changes in its ownership interest resulting from the issuance of equity by one
of its subsidiaries in the condensed consolidated statement of operations.
Accordingly, in the first quarter of fiscal 2009, the Company recorded a gain of
$0.3 million on the sale of Zedge stock.
  Note
16—Headquarters Relocation
  In
February 2009, the Company announced that it will move its headquarters in
Newark, N.J. The Company is consolidating its operations into considerably less
office space in newly leased headquarters, leaving its current building at 520
Broad Street in Newark and moving a block away to 550 Broad Street. The Company
will remain at 550 Broad Street on an interim basis while evaluating other long
term relocation options. The Company leased 72,500 square feet at 550 Broad
Street for one year commencing in May 2009, with options to renew the lease
through May 2019. The minimum rent for the first year is $0.9 million payable
semi-annually. At April 30, 2009, the carrying value of the land, building and
improvements at 520 Broad Street was $50.5 million and the mortgage payable
balance was $26.1 million. The Company evaluated the land, building and
improvements for impairment and determined that the carrying value was
recoverable. The Company is 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.
  19
 Table of Contents
  Note
17—Proposed Spin-Off of Certain Subsidiaries
  On May
12, 2009, the Company’s Board of Directors approved a tax-free spinoff (the
“Spin-Off”) to its stockholders of the equity of CTM Media Holdings, Inc.
(“Holdings”). Prior to effecting the Spin-Off, the following subsidiaries of the
Company would be transferred to Holdings: (i) CTM Media Group, Inc.; (ii) IDT
Local Media, Inc.; (iii) IDT Internet Mobile Group, which holds the Company’s
majority interest in Idea and Design Works, LLC (IDW Publishing); and (iv)
Beltway Acquisition Corporation, which holds the broadcast license of the
WMET-AM radio station. Approval of the Spin-Off by the Company’s stockholders is
not required.
  The
Company’s Board of Directors believes that the Spin-Off will separate certain
business units whose performance and financial results of the business units to
be separated are more predictable and have different growth characteristics than
the remaining operations. The Company also believes that separating the two
groups of operating units will allow management of each of the Company and
Holdings to design and implement corporate strategies and policies that are
based primarily on the business characteristics of that company and its business
units, maintain a sharper focus on core business and growth opportunities, and
concentrate their financial resources wholly on their own operations. Moreover,
the separation of Holdings will provide investors with greater transparency
regarding the value of Holdings’ business units. In addition, the Spin-Off will
separate business units with different risk profiles and performance
characteristics from one another.
  The
planned Spin-Off will be accomplished through a pro rata distribution of
Holdings’ common stock to the Company’s stockholders of record as of the close
of business on the record date which has yet to be determined by the Company’s
Board of Directors. As a result of the Spin-Off, it is currently contemplated
that each of the Company’s stockholders will receive: (i) one share of Holdings
Class A common stock for every three shares of the Company’s common stock held
on the record date; (ii) one share of Holdings Class A common stock for every
three shares of the Company’s Class B common stock held on the record date;
(iii) one share of Holdings Class B common stock for every three shares of the
Company’s Class A common stock held on the record date; and (iv) cash in lieu of
a fractional share of all classes of Holdings’ common stock.
  Completion
of the Spin-Off is subject to effectiveness of a Form 10 registration statement
filed with the SEC. The Form 10 was filed on May 13, 2009 with the SEC and
includes detailed information about Holdings, the Spin-Off and related matters.
The Company and Holdings will distribute an information statement to
stockholders following completion of the SEC’s review of the Form 10. The
Company’s Board of Directors reserves the right to amend, modify or abandon the
Spin-Off and the related transactions at any time prior to the distribution
date.
  This
discussion of the proposed Spin-Off contains forward-looking statements
addressing the Spin-Off, the operation, business and prospects of the Company
and Holdings following the Spin-Off and other expectations, prospects, estimates
and other matters that are dependent upon future events or developments. These
matters are subject to risks and uncertainties that could cause actual results
to differ materially from those projected, anticipated or implied. These risks
and uncertainties include uncertainties regarding the Spin-Off, including the
timing and terms of the Spin-Off and whether the Spin-Off will be completed, and
uncertainties regarding the impacts on the Company and Holdings and the market
for their respective securities if the Spin-Off is accomplished.
  Note
18—Recently Issued Accounting Standards Not Yet Adopted
  In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. SFAS
141(R) establishes principles and requirements for how the acquirer: (a)
recognizes and measures the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (c) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. SFAS 141(R) requires the acquiring entity in a
business combination to recognize the full fair value of the assets acquired and
liabilities assumed in the transaction at the acquisition date; in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date; the immediate expense recognition of
transaction costs; changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will affect income tax
expense; and restructuring plans will be accounted for separately from the
business combination, among other things. In April 2009, the FASB issued FSP
141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, which amends and clarifies SFAS 141(R) with regards
to the initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. The Company is required to apply SFAS 141(R) and FSP
141(R)-1 to business combinations with an acquisition date on or after August 1,
2009. SFAS 141(R) fundamentally changes many aspects of existing accounting
requirements for business combinations. As such, if the Company enters into any
business combinations after the adoption of SFAS 141(R), a transaction may
significantly impact the Company’s financial position and results of operations,
but not cash flows, when compared to acquisitions accounted for under current US
GAAP.
  20
 Table of Contents
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS
160 clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. Also, SFAS 160 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,
SFAS 160 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. The Company is required to adopt SFAS 160 on August 1,
2009. Upon the adoption of SFAS 160, the Company will change the classification
and presentation of noncontrolling interest in its financial statements, which
is currently referred to as minority interests. The Company is still evaluating
the impact that SFAS 160 will have on its consolidated financial statements, but
the Company does not expect SFAS 160 to have a material impact on its financial
position, results of operations or cash flows.
  In April
2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets. The Company is required to adopt FSP 142-3 on August 1,
2009. The guidance in FSP 142-3 for determining the useful life of a recognized
intangible asset shall be applied prospectively to intangible assets acquired
after adoption, and the disclosure requirements shall be applied prospectively
to all intangible assets recognized as of, and subsequent to, adoption. The
Company is currently evaluating the impact of FSP 142-3 on its consolidated
financial statements.
  In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the guidance in US GAAP
for assessing whether an impairment of a debt security is other than temporary,
and revises the presentation and disclosure in the financial statements of other
than temporary impairments of debt and equity securities. The Company was
required to adopt FSP 115-2 on May 1, 2009. In addition, in April 2009, the SEC
amended Topic 5.M. in the Staff Accounting Bulletin Series entitled Other Than Temporary Impairment of
Certain Investments in Debt and Equity Securities to exclude debt
securities from its scope. Topic 5.M. as amended maintains the staff’s previous
views related to equity securities. The Company is currently evaluating the
impact of FSP 115-2 on its consolidated financial statements. The Company does
not expect the amendment to Topic 5.M. to have a material impact on its
financial position, results of operations or cash flows.
  In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which amends SFAS 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. The FSP 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. FSP 107-1 became
effective for the Company’s financial statements beginning on May 1, 2009. The
Company will include the disclosures required by FSP 107-1 in its consolidated
financial statements for its first quarter ending October 31, 2009.
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events,to
establish principles and requirements for subsequent events, in particular: (a)
the period after the balance sheet date during which management of a reporting
entity shall evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (b) the circumstances
under which an entity shall recognize events or transactions occurring after the
balance sheet date in its financial statements, and (c) the disclosures that an
entity shall make about events or transactions that occurred after the balance
sheet date. SFAS 165 is effective prospectively for interim or annual financial
periods ending after June 15, 2009. SFAS 165 should not result in significant
changes in the subsequent events that the Company reports in its financial
statements, because it does not change the previous recognition and disclosure
guidance in the accounting literature and it does not change the date through
which the Company was expected to evaluate subsequent events. This statement
requires management to disclose the date through which subsequent events have
been evaluated, which the Company will begin to disclose in its Annual Report on
Form 10-K for the year ending July 31, 2009.
  21
 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, 2008, as filed with the U.S. Securities and
Exchange Commission (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, 2008. 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, 2008.
  Overview
  General
  We are a
multinational holding company with subsidiaries spanning several industries. Our
principal businesses consist of:
  •
              IDT
      Telecom, which provides telecommunications services to consumers and
      businesses, including prepaid and rechargeable calling cards, a range of
      voice over Internet protocol (VoIP) communications services, wholesale
      carrier services and local, long distance and wireless phone
      services;
  •
              IDT
      Energy, which operates our Energy Services Company, or ESCO, in New York
      State;
  •
              IDT
      Local Media, which is primarily comprised of CTM Media Group, our brochure
      distribution company, IDW Publishing, which is a comic book and graphics
      novel publisher that creates and licenses original intellectual property,
      and the WMET-AM radio station in the Washington D.C. metropolitan
      area;
  •
              Alternative
      Energy, which consists of American Shale Oil Corporation, or AMSO, our
      U.S. oil shale initiative, and Israel Energy Initiatives, Ltd., or IEI,
      our Israeli alternative energy venture;
and
  •
              Zedge,
      which provides a web-based, worldwide destination for free, user-generated
      mobile content distribution and
sharing.
  We also
hold assets including certain real estate investments, and operate other smaller
or early-stage initiatives and operations.
  We
conduct our business through the following three reportable segments: Telecom
Platform Services and Consumer Phone Services, which comprise IDT Telecom, and
IDT Energy. All other operating segments that are not reportable individually
are collectively called IDT Capital. IDT Capital includes the following
businesses: IDT Local Media, Zedge, Alternative Energy, our real estate
investments and various other smaller lines of business.
  In
February 2009, we announced that we will move our headquarters in Newark, N.J.
We are consolidating operations into considerably less office space in newly
leased headquarters, leaving our current building at 520 Broad Street in Newark
and moving a block away to 550 Broad Street. We will remain at 550 Broad Street
on an interim basis while evaluating other long term relocation options. We
leased 72,500 square feet at 550 Broad Street for one year commencing in May
2009, with options to renew the lease through May 2019. The minimum rent for the
first year is $0.9 million payable semi-annually. At April 30, 2009, the
carrying value of the land, building and improvements at 520 Broad Street was
$50.5 million and the mortgage payable balance was $26.1 million. We evaluated
the land, building and improvements for impairment 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.
  22
 Table of Contents
  Proposed
Spin-Off of Certain Subsidiaries
  On May
12, 2009, our Board of Directors approved a tax-free spinoff (the “Spin-Off”) to
our stockholders of the equity of CTM Media Holdings, Inc. (Holdings). Prior to
effecting the Spin-Off, the following subsidiaries of ours would be transferred
to Holdings: (i) CTM Media Group, Inc.; (ii) IDT Local Media, Inc.; (iii) IDT
Internet Mobile Group, which holds our majority interest in Idea and Design
Works, LLC (IDW Publishing); and (iv) Beltway Acquisition Corporation, which
holds the broadcast license of the WMET-AM radio station. Approval of the
Spin-Off by our stockholders is not required.
  Our Board
of Directors believes that the Spin-Off will separate certain business units
whose performance and financial results of the business units to be separated
are more predictable and have different growth characteristics than the
remaining operations. We also believe that separating the two groups of
operating units will allow our management and Holdings’ management to design and
implement corporate strategies and policies that are based primarily on the
business characteristics of that company and its business units, maintain a
sharper focus on core business and growth opportunities, and concentrate their
financial resources wholly on their own operations. Moreover, the separation of
Holdings will provide investors with greater transparency regarding the value of
Holdings’ business units. In addition, the Spin-Off will separate business units
with different risk profiles and performance characteristics from one
another.
  The
planned Spin-Off will be accomplished through a pro rata distribution of
Holdings’ common stock to our stockholders of record as of the close of business
on the record date which has yet to be determined by our Board of Directors. As
a result of the Spin-Off, it is currently contemplated that each of our
stockholders will receive: (i) one share of Holdings Class A common stock for
every three shares of our common stock held on the record date; (ii) one share
of Holdings Class A common stock for every three shares of our Class B common
stock held on the record date; (iii) one share of Holdings Class B common stock
for every three shares of our Class A common stock held on the record date; and
(iv) cash in lieu of a fractional share of all classes of Holdings’ common
stock.
  Completion
of the Spin-Off is subject to effectiveness of a Form 10 registration statement
filed with the SEC. The Form 10 was filed on May 13, 2009 with the SEC and
includes detailed information about Holdings, the Spin-Off and related matters.
We and Holdings will distribute an information statement to stockholders
following completion of the SEC’s review of the Form 10. Our Board of Directors
reserves the right to amend, modify or abandon the Spin-Off and the related
transactions at any time prior to the distribution date.
  This
discussion of the proposed Spin-Off contains forward-looking statements
addressing the Spin-Off, the operation, business and prospects of us and
Holdings following the Spin-Off and other expectations, prospects, estimates and
other matters that are dependent upon future events or developments. These
matters are subject to risks and uncertainties that could cause actual results
to differ materially from those projected, anticipated or implied. These risks
and uncertainties include uncertainties regarding the Spin-Off, including the
timing and terms of the Spin-Off and whether the Spin-Off will be completed, and
uncertainties regarding the impacts on us and Holdings and the market for their
respective securities if the Spin-Off is accomplished.
  Discontinued
Operations
  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 received the purchase price on
February 2, 2009. 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. IDT
Carmel recognized a loss of $34.3 million in the second quarter of fiscal 2009
in connection with the sale of its debt portfolios.
  Revenues,
loss before income taxes and net loss of IDT Carmel, which is included in
discontinued operations, are as follows:
  Three
      Months Ended
                                  April
      30,
                                
                                
                                Nine
      Months Ended
                                  April
      30,2009
                                
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008(in
      thousands)Revenues
                                
                                $
                                932
                                
                                
                                $
                                12,513
                                
                                
                                $
                                16,534
                                
                                
                                $
                                34,542(Loss)
      income before income taxes
                                
                                $
                                (3,039
                                )
                                
                                $
                                1,830
                                
                                
                                $
                                (38,867
                                )
                                
                                $
                                (8,335
                                )Net
      (loss) income
                                
                                $
                                (3,039
                                )
                                
                                $
                                1,844
                                
                                
                                $
                                (38,867
                                )
                                
                                $
                                (8,640
                                )
  23
 Table of Contents
  IDT
Entertainment
  In the
first quarter of fiscal 2007, we completed the sale of IDT Entertainment to
Liberty Media Corporation. We are 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, we would have to pay Liberty Media up to $3.5 million if the Contingent
Value does not exceed $439 million, which is included in “Other long-term
liabilities” in the condensed consolidated balance sheet. Loss on sale of
discontinued operations in the three and nine months ended April 30, 2008 of
$0.5 million and $4.5 million, respectively, included compensation, taxes and
the costs of a lawsuit, all of which arose from and were directly related to the
operations of IDT Entertainment prior to its disposal.
  Investment
in American Shale Oil, LLC
  AMSO was
formed as a wholly-owned subsidiary in February 2008. In April 2008, AMSO
acquired a 75% equity interest in American Shale Oil, L.L.C., or 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, bringing the total interest then held by us to approximately
90%.
  AMSO, LLC
is one of only 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 other holders consist of Shell Frontier Oil and Gas, Inc. (three
leases) and Chevron U.S.A., Inc. 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 E&P SCR/Recherche & Development,
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 capital
requirements going forward. We recognized a gain of $2.6 million in the third
quarter of fiscal 2009 in connection with the sale. While AMSO will operate the
project during the RD&D phase, Total will provide a majority of the funding
during this phase of the project, 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.
Total’s indirect corporate parent, Total S.A., is the world’s fifth largest
integrated oil and gas company.
  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. Pursuant to Financial Accounting Standards Board (FASB)
Interpretation 46(R), Consolidation of Variable Interest
Entities, 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.
  AMSO has
committed to a total investment of $10.0 million in AMSO, LLC, subject to
certain exceptions where the amount could be greater. We contributed $0.9
million to AMSO, LLC in the third quarter of fiscal 2009. At April 30, 2009,
subject to certain exceptions, our minimum funding commitment as a result of our
investment in AMSO, LLC is $8.3 million.
  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 79.3% of our
total revenues from continuing operations in the nine months ended April 30,
2009, compared to 84.4% in the nine months ended April 30, 2008.
  24
 Table of Contents
  In our
IDT Telecom businesses, our competitors continue to aggressively price their
services. In addition, we discovered that many of our major competitors were
significantly overstating the number of minutes to be delivered by their calling
cards, and accordingly, on March 8, 2007, we filed a civil anti-fraud
action in the federal district court in Newark, New Jersey, claiming that 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 prepaid calling cards as
customers migrate from using prepaid calling cards to wireless services. We
expect pricing of wireless services to continue to decrease, which may result in
increased substitution of prepaid calling cards by wireless services and
increased pricing pressure on our prepaid 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. Minutes-of-use in our global calling card business has generally
declined each quarter beginning in the third quarter of fiscal 2006, from
4.23 billion in the second quarter of fiscal 2006 to 1.78 billion in
the third quarter of fiscal 2009.
  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.
  Our
distribution agreement with Union Telecard Alliance, LLC, or UTA, which
distributes most of our prepaid calling cards in the United States, expired on
April 24, 2009. We are currently distributing prepaid calling cards and
other products through UTA on a month-to-month basis.
  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 US 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 2008. 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 2008.
  Results
of Operations
  Three
and Nine Months Ended April 30, 2009 Compared to Three and Nine Months Ended
April 30, 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
                            April
      30,
                          
                          
                          Change
                          
                          
                          Nine
      months ended
                            April
      30,
                          
                          
                          Change2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %
                          
                          
                          2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %(in
      millions)RevenuesIDT
      Telecom
                          
                          $
                          312.1
                          
                          
                          $
                          361.3
                          
                          
                          $
                          (49.2
                          )
                          
                          
                          (13.6
                          )%
                          
                          $
                          998.2
                          
                          
                          $
                          1,151.0
                          
                          
                          $
                          (152.8
                          )
                          
                          
                          (13.3
                          )%IDT
      Energy
                          
                          
                          66.7
                          
                          
                          
                          66.3
                          
                          
                          
                          0.4
                          
                          
                          
                          0.6
                          
                          
                          
                          227.7
                          
                          
                          
                          173.4
                          
                          
                          
                          54.3
                          
                          
                          
                          31.3IDT
      Capital
                          
                          
                          10.1
                          
                          
                          
                          13.1
                          
                          
                          
                          (3.0
                          )
                          
                          
                          (22.4
                          )
                          
                          
                          32.8
                          
                          
                          
                          39.1
                          
                          
                          
                          (6.3
                          )
                          
                          
                          (16.1
                          )Total
      revenues
                          
                          $
                          388.9
                          
                          
                          $
                          440.7
                          
                          
                          $
                          (51.8
                          )
                          
                          
                          (11.7
                          )%
                          
                          $
                          1,258.7
                          
                          
                          $
                          1,363.5
                          
                          
                          $
                          (104.8
                          )
                          
                          
                          (7.7
                          )%
 
 Revenues. The decrease
in consolidated revenues in the three and nine months ended April 30, 2009
compared to the similar periods in fiscal 2008 was primarily due to a decline in
IDT Telecom revenues, partially offset in the nine months ended April 30, 2009
compared to the similar period in fiscal 2008 by an increase in IDT Energy
revenues. The decrease in IDT Telecom revenues in the three and nine months
ended April 30, 2009 compared to the similar periods in fiscal 2008 resulted
from decreases in the revenues of both of the IDT Telecom segments.
Approximately $19.0 million and $40.4 million of the decrease in IDT Telecom
revenues in the three and nine months ended April 30, 2009, respectively,
compared to the similar periods in fiscal 2008 was due to changes in foreign
currency exchange rates. IDT Telecom minutes of use (excluding minutes of use
relating to our Consumer Phone Services segment, as the portion of such minute
traffic carried on our network is insignificant) declined 5.2% from 5.556
billion in the three months ended April 30, 2008 to 5.270 billion in the three
months ended April 30, 2009, and declined 5.8% from 17.255 billion in the nine
months ended April 30, 2008 to 16.247 billion in the nine months ended April 30,
2009.
  25
 Table of Contents
  IDT
Energy’s revenues were basically the same in the three months ended April 30,
2009 and 2008. The increase in IDT Energy revenues in the nine months ended
April 30, 2009 compared to the similar period in fiscal 2008 was the result of
increases in both electricity and natural gas revenues driven by the significant
growth in the customer base of IDT Energy, as well as increases in average
electricity rates charged to customers.
  The
decrease in IDT Capital revenues in the three and nine months ended April 30,
2009 compared to the similar periods in fiscal 2008 is primarily due to the
disposition of IDT Global Israel, Ltd., our call center operations in Israel, in
the fourth quarter of fiscal 2008, as well as the disposition of an additional
business in the first quarter of fiscal 2009. These two businesses generated
revenues of $2.4 million and $6.9 million in the three and nine months ended
April 30, 2008, respectively.
  Three months ended
                    April
      30,
                  
                  
                  Change
                  
                  
                  Nine
      months ended
                    April
      30,
                  
                  
                  Change2009
                  
                  
                  2008
                  
                  
                  $
                  
                  
                  
                  %
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  $
                  
                  
                  
                  %(in
      millions)Costs
      and expensesDirect
      cost of revenues
                  
                  $
                  295.7
                  
                  
                  $
                  350.5
                  
                  
                  $
                  (54.8
                  )
                  
                  
                  (15.6
                  )%
                  
                  $
                  963.9
                  
                  
                  $
                  1,077.6
                  
                  
                  $
                  (113.7
                  )
                  
                  
                  (10.6
                  )%Selling,
      general and administrative
                  
                  
                  74.2
                  
                  
                  
                  116.8
                  
                  
                  
                  (42.6
                  )
                  
                  
                  (36.5
                  )
                  
                  
                  239.7
                  
                  
                  
                  346.1
                  
                  
                  
                  (106.4
                  )
                  
                  
                  (30.7
                  )Depreciation
      and amortization
                  
                  
                  11.9
                  
                  
                  
                  17.3
                  
                  
                  
                  (5.4
                  )
                  
                  
                  (31.4
                  )
                  
                  
                  38.9
                  
                  
                  
                  51.7
                  
                  
                  
                  (12.8
                  )
                  
                  
                  (24.8
                  )Bad
      debt
                  
                  
                  2.8
                  
                  
                  
                  3.1
                  
                  
                  
                  (0.3
                  )
                  
                  
                  (8.4
                  )
                  
                  
                  7.6
                  
                  
                  
                  8.3
                  
                  
                  
                  (0.7
                  )
                  
                  
                  (8.4
                  )Research and
      development
                  
                  
                  1.5
                  
                  
                  
                  8.9
                  
                  
                  
                  (7.4
                  )
                  
                  
                  (82.6
                  )
                  
                  
                  7.9
                  
                  
                  
                  9.8
                  
                  
                  
                  (1.9
                  )
                  
                  
                  (19.1
                  )Impairments
                  
                  
                  62.1
                  
                  
                  
                  0.1
                  
                  
                  
                  62.0
                  
                  
                  
                  nm
                  
                  
                  
                  72.8
                  
                  
                  
                  0.3
                  
                  
                  
                  72.5
                  
                  
                  
                  nmRestructuring
      charges
                  
                  
                  0.6
                  
                  
                  
                  16.4
                  
                  
                  
                  (15.8
                  )
                  
                  
                  (96.3
                  )
                  
                  
                  8.4
                  
                  
                  
                  20.4
                  
                  
                  
                  (12.0
                  )
                  
                  
                  (58.7
                  )Total
      costs and expenses
                  
                  $
                  448.8
                  
                  
                  $
                  513.1
                  
                  
                  $
                  (64.3
                  )
                  
                  
                  (12.5
                  )%
                  
                  $
                  1,339.2
                  
                  
                  $
                  1,514.2
                  
                  
                  $
                  (175.0
                  )
                  
                  
                  (11.6
                  )%
 
 nm—not
meaningful
 
 Direct Cost of
Revenues. The decrease in direct cost of revenues in the three and
nine months ended April 30, 2009 compared to the similar periods in fiscal 2008
was due primarily to the decline in IDT Telecom’s direct cost of revenues,
partially offset in the nine months ended April 30, 2009 compared to the similar
period in fiscal 2008 by an increase in IDT Energy’s direct cost of revenues.
The decrease in direct cost of revenues in IDT Telecom in the three and nine
months ended April 30, 2009 compared to the similar periods in fiscal 2008
reflects the decline in IDT Telecom’s revenues and continued reductions in
connectivity costs. Approximately $17.7 million and $37.2 million of the
decrease in direct cost of revenues in IDT Telecom in the three and nine months
ended April 30, 2009, respectively, compared to the similar periods in fiscal
2008 was due to changes in foreign currency exchange rates. The increase in IDT
Energy’s direct cost of revenues in the nine months ended April 30, 2009
compared to the similar period in fiscal 2008 was primarily due to an increase
in natural gas consumption. Overall gross margin increased from 20.5% and 21.0%
in the three and nine months ended April 30, 2008, respectively, to 24.0% and
23.4% in the three and nine months ended April 30, 2009, respectively, due to
increases in gross margins in IDT Energy and IDT Capital, partially offset by
lower gross margins in IDT Telecom.
  Selling, General and
Administrative. The
decrease in selling, general and administrative expenses in the three and nine
months ended April 30, 2009 compared to the similar periods in fiscal 2008 was
due to reductions in the selling, general and administrative expenses of IDT
Telecom, IDT Capital and corporate, offset by an increase in the selling,
general and administrative expenses of IDT Energy. The reduction in IDT
Telecom’s selling, general and administrative expenses in the three and nine
months ended April 30, 2009 compared to the similar periods in fiscal 2008 was
primarily due to reductions in headcount, changes to employee benefit and bonus
programs, reductions in facilities and maintenance costs, as well as reduced
advertising and marketing expenses and lower legal and other professional fees.
IDT Capital’s selling, general and administrative expenses decreased in the
three and nine months ended April 30, 2009 compared to the similar periods in
fiscal 2008 due to the divestiture of many non-profitable businesses during the
past year as we continue to focus on our core operations, as well as a decrease
in legal fees related to ongoing litigation related to certain of our
intellectual property. Corporate general and administrative expenses decreased
in the three and nine months ended April 30, 2009 compared to the similar
periods in fiscal 2008 due to decreases in payroll and related expenses, legal
fees and charitable contributions, as well as an accrual of $10.5 million in
April 2008 related to a jury award for an employment matter. IDT Energy’s
selling, general and administrative expenses increased in the three and nine
months ended April 30, 2009 compared to the similar periods in fiscal 2008 due
primarily to increases in billing related fees. In addition, the increase in
selling, general and administrative expenses in the nine months ended April 30,
2009 compared to the similar period in fiscal 2008 was also due to increases in
customer acquisition costs and compensation expense. As a percentage of total
revenue from continuing operations, selling, general and administrative expenses
decreased from 26.5% and 25.4% in the three and nine months ended April 30,
2008, respectively, to 19.1% and 19.0% in the three and nine months ended April
30, 2009, respectively, as selling, general and administrative expenses
decreased at a faster rate than total revenues.
  26
 Table of Contents
  Stock-based
compensation expense included in selling, general and administrative expenses,
primarily relating to the vesting of restricted stock and stock option grants,
was $0.8 million and $2.7 million in the three and nine months ended April 30,
2009, respectively, compared to nil and $3.2 million in the three and nine
months ended April 30, 2008, respectively.
  On
October 31, 2008, we entered into an Amended and Restated Employment
Agreement with Mr. Howard S. Jonas, our Chairman. 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. The
restricted shares were granted on October 31, 2008 pursuant to our 2005
Stock Option and Incentive Plan. 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. We recognized $0.2 million and $0.3 million of the
compensation cost in the three and nine months ended April 30, 2009,
respectively related to this agreement.
  On
November 5, 2008, we and Mr. James A. Courter, our Vice Chairman
and Chief Executive Officer, entered into an amendment to Mr. Courter’s
employment agreement. Pursuant to the amendment, Mr. Courter was granted
0.4 million restricted shares of Class B common stock in lieu of a cash
base salary from January 1, 2009 until October 21, 2009. The
restricted shares are scheduled to vest on October 21, 2009, the last day
of the term under the amended employment agreement. Pursuant to the amendment,
all of the restricted shares paid to Mr. Courter under the amendment
automatically vest in the event of (i) a change in control of the Company;
(ii) Mr. Courter’s death; or (iii) if Mr. Courter is
terminated without cause or if he terminates his employment for good reason as
defined by the amendment. A pro rata portion of the restricted shares will vest
in the event of termination for cause. The restricted shares were granted on
November 5, 2008 pursuant to our 2005 Stock Option and Incentive Plan.
Total unrecognized compensation cost on the grant date was $0.8 million. The
unrecognized compensation cost is expected to be recognized from January 1,
2009 through October 21, 2009. We recognized $0.2 million and $0.3 million
of the compensation cost in the three and nine months ended April 30, 2009,
respectively related to this agreement.
  Depreciation and
Amortization. The decrease in depreciation and amortization expense in
the three and nine months ended April 30, 2009 compared to the similar periods
in fiscal 2008 was primarily due to IDT Telecom property, plant and equipment
becoming fully depreciated and a decrease in capital expenditures.
  Bad Debt Expense. Bad debt
expense decreased in the three months ended April 30, 2009 compared to the
similar period in fiscal 2008 due to a decrease in IDT Telecom’s bad debt
expense. Bad debt expense decreased in the nine months ended April 30, 2009
compared to the similar period in fiscal 2008 due to a decrease in IDT Telecom’s
bad debt expense, partially offset by an increase in IDT Energy’s bad debt
expense. The decrease in IDT Telecom’s bad debt expense in the three and nine
months ended April 30, 2009 as compared to the comparable periods in fiscal 2008
was primarily due to the decrease in revenues in our Consumer Phones Services
segment and due to evaluations of its outstanding receivables that resulted in
adjustments to provisions. The increase in IDT Energy’s bad debt expense in the
nine months ended April 30, 2009 as compared to the comparable period in fiscal
2008 was due primarily to the increase in revenues and the resulting increase in
the allowance for receivables that were not guaranteed under purchase of
receivables, or POR, programs.
  Research and Development.Research and development expenses in three and nine months ended April
30, 2009 and 2008 consist of the following:
  Three months ended
                            April
      30,
                          
                          
                          Nine
      months ended
                            April
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(in
      millions)Telecom
      Platform Services Segment:Fabrix
      T.V., Ltd.
                          
                          $
                          0.8
                          
                          
                          $
                          2.6
                          
                          
                          $
                          2.4
                          
                          
                          $
                          3.6IDT
      Capital:Alternative
      Energy:AMSO
                          
                          
                          0.1
                          
                          
                          
                          6.0
                          
                          
                          
                          3.2
                          
                          
                          
                          6.0Israel
      Energy Initiatives, Ltd.
                          
                          
                          0.6
                          
                          
                          
                          0.2
                          
                          
                          
                          2.4
                          
                          
                          
                          0.2Total
      research and development expenses
                          
                          $
                          1.5
                          
                          
                          $
                          8.8
                          
                          
                          $
                          8.0
                          
                          
                          $
                          9.8
  27
 Table of Contents
  Fabrix
T.V., Ltd. is our majority-owned venture developing a video content delivery and
storage platform. Alternative Energy includes (1) AMSO, which commenced its
research and development activities in the third quarter of fiscal 2008 upon its
acquisition of AMSO, LLC, which is one of three holders of 10-year leases
granted by the U.S. Bureau of Land Management to research, develop and
demonstrate in-situ technologies for potential commercial shale oil production
in western Colorado, and (2) IEI, our Israeli alternative energy venture,
which was granted a license in Israel in the fourth quarter of fiscal 2008 to
explore certain public lands for potential production of shale oil. In April
2008, we acquired equity interests of approximately 90% in AMSO, LLC primarily
in exchange for cash of $5.5 million in transactions accounted for under the
purchase method of accounting. We charged an aggregate of $5.5 million to
research and development expense at the acquisition date, which includes amounts
assigned to AMSO, LLC’s tangible and intangible assets to be used in its
research and development project that have no alternative future use. 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
capital requirements going forward. We no longer consolidate AMSO, LLC as of the
closing of the transaction with Total, instead, we account for our 50% ownership
interest in AMSO, LLC using the equity method.
  Impairments. Impairments
in the three and nine months ended April 30, 2009 and 2008 consist of the
following:
  Three months ended
                              April
      30,
                            
                            
                            Nine
      months ended
                              April
      30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(in
      millions)Goodwill:Telecom
      Platform Services – Rechargeable reporting unit.
                            
                            $
                            29.0
                            
                            
                            $
                            —
                            
                            
                            $
                            29.0
                            
                            
                            $
                            —IDT
      Capital – CTM Media Group
                            
                            
                            29.7
                            
                            
                            
                            —
                            
                            
                            
                            29.7
                            
                            
                            
                            —IDT
      Capital – WMET
                            
                            
                            1.2
                            
                            
                            
                            —
                            
                            
                            
                            1.2
                            
                            
                            
                            —IDT
      Capital – IDW Publishing
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            1.8
                            
                            
                            
                            —Total
      goodwill
                            
                            
                            59.9
                            
                            
                            
                            —
                            
                            
                            
                            61.7
                            
                            
                            
                            —FCC
      licenses
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            5.3
                            
                            
                            
                            —Other
      assets
                            
                            
                            2.3
                            
                            
                            
                            0.1
                            
                            
                            
                            5.8
                            
                            
                            
                            0.3Total
      impairments
                            
                            $
                            62.2
                            
                            
                            $
                            0.1
                            
                            
                            $
                            72.8
                            
                            
                            $
                            0.3
 
 In the
second quarter of fiscal 2009, the following events and circumstances indicated
that the fair value of certain of our reporting units may be below their
carrying value: (1) a significant adverse change in the business climate,
(2) operating losses of reporting units, (3) significant revisions to
internal forecasts, and (4) plans to restructure operations including
reductions in workforce. We measured the fair value of our reporting units by
discounting their estimated future cash flows using an appropriate discount
rate. The carrying value including goodwill exceeded the estimated fair value of
the following reporting units: Rechargeable, CTM Media Group, WMET and IDW
Publishing. We therefore performed additional steps for these reporting units to
determine whether an impairment of goodwill was required. As a result of this
analysis, in the nine months ended April 30, 2009, we recorded aggregate
preliminary goodwill impairment of $61.7 million, which is subject to
adjustment. The preliminary goodwill impairment reduced the carrying amount of
the goodwill in each of these reporting units to zero. We recorded the
preliminary amounts because it was probable that goodwill was impaired, and the
amount of impairment could be reasonably estimated. On April 30, 2009, our
remaining goodwill was $12.4 million. Calculating the fair value of the
reporting units, and allocating the estimated fair value to all of the tangible
assets, intangible assets and liabilities, requires significant estimates and
assumptions. Should these estimates or assumptions prove to be incorrect, we may
record additional goodwill impairment or adjust our preliminary impairment in
future periods.
  IDT
Spectrum, which is a unit of IDT Capital, recorded impairment in the second
quarter of fiscal 2009 of $5.3 million, which reduced the carrying value of its
FCC licenses to zero. The events and circumstances in the second quarter of
fiscal 2009 described above indicated that the FCC licenses may be impaired. We
estimated that these FCC licenses had nominal value based on continuing
operating losses and projected losses for the foreseeable future.
  We
recorded an impairment of $3.5 million in the second quarter of fiscal 2009
which reduced the carrying value of IDT Global Israel’s building in Israel. We
retained exclusive control over the sale of this building after we disposed of
80% of the issued and outstanding shares of IDT Global Israel in the fourth
quarter of fiscal 2008. Once the building is sold, we will receive the net
proceeds of the sale after the repayment of the obligations secured by the
building. At April 30, 2009, the revised estimated sales price of the building
net of costs to sell of $12.7 million was included in “Other current assets” and
the mortgage balance of $6.0 million was included in “Other current
liabilities”.
  As a
result of our conclusion that an interim impairment test of goodwill was
required during the second quarter of fiscal 2009, we also assessed the
recoverability of certain of our long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The assessment of long-lived assets was
based on projected undiscounted future cash flows of the long-lived asset groups
compared to their carrying values. Our cash flow estimates were derived from our
annual planning process and interim forecasting. We believe that our procedures
for projecting future cash flows are reasonable and consistent with market
conditions at the time of estimation. As a result of our assessment under SFAS
144, as of April 30, 2009, we recorded aggregate impairments of $2.3 million
related to certain leasehold interests.
  28
 Table of Contents
  Restructuring
Charges. The restructuring charges in the three and nine months
ended April 30, 2009 and 2008 consisted primarily of severance related to a
company-wide cost savings program and reduction in force. As of April 30, 2009,
these programs resulted in the termination of approximately 1,420 employees
since the third quarter of fiscal 2006. As of April 30, 2009, we had a total of
approximately 1,480 employees, of which approximately 1,060 are located in the
United States and approximately 420 are located at our international operations.
The restructuring charges in the nine months ended April 30, 2009 also included
costs for the shutdown or consolidation of certain facilities of $0.7 million in
Corporate and $0.8 million in IDT Telecom. In the first quarter of fiscal 2009,
IDT Telecom reversed accrued severance of $2.6 million as a result of
modifications to retention and/or severance agreements with certain employees.
In the first quarter of fiscal 2008, IDT Spectrum reversed $0.4 million of
restructuring charges recorded in fiscal 2006 for a contract
termination.
  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,
                          2008
                        
                        
                        Charged to
                          Expense
                        
                        
                        Payments
                        
                        
                        Balance at
                          April
      30,
                          2009(in
      millions)IDT
      Telecom
                        
                        $
                        10.9
                        
                        
                        $
                        4.2
                        
                        
                        $
                        (11.5
                        )
                        
                        $
                        3.6IDT
      Energy
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —IDT
      Capital
                        
                        
                        0.5
                        
                        
                        
                        1.6
                        
                        
                        
                        (2.1
                        )
                        
                        
                        —Corporate
                        
                        
                        7.1
                        
                        
                        
                        2.6
                        
                        
                        
                        (5.5
                        )
                        
                        
                        4.2Total
                        
                        $
                        18.5
                        
                        
                        $
                        8.4
                        
                        
                        $
                        (19.1
                        )
                        
                        $
                        7.8
 
 Gain on sale of interest in AMSO,
LLC.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 capital requirements going forward. We recognized a gain
of $2.6 million in the three months ended April 30, 2009 in connection with the
sale, which is included in loss from operations.
  Arbitration Award Income. In
November 2007, our Net2Phone Cable Telephony subsidiary, which is included
in our Telecom Platform Services segment, was awarded approximately
€23 million, plus interest from November 2005, in an arbitration proceeding
against Altice One S.A. and certain of its affiliates. The arbitration
proceeding related to Altice’s termination of cable telephony license agreements
Net2Phone Cable Telephony had entered into in November 2004. We recorded a gain
of $40.0 million for this arbitration award, including accrued interest, in the
first quarter of fiscal 2008, which is included in loss from
operations.
  Three months ended
                                April
      30,
                              
                              
                              Change
                              
                              
                              Nine months ended
                                April
      30,
                              
                              
                              Change2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %(in
      millions)Loss
      from operations
                              
                              $
                              (57.3
                              )
                              
                              $
                              (72.4
                              )
                              
                              $
                              15.1
                              
                              
                              
                              20.9
                              %
                              
                              $
                              (77.8
                              )
                              
                              $
                              (110.7
                              )
                              
                              $
                              32.9
                              
                              
                              
                              29.7
                              %Interest
      (expense) income, net
                              
                              
                              (2.1
                              )
                              
                              
                              (0.3
                              )
                              
                              
                              (1.8
                              )
                              
                              
                              (599.7
                              )
                              
                              
                              (4.8
                              )
                              
                              
                              5.3
                              
                              
                              
                              (10.1
                              )
                              
                              
                              (190.4
                              )Other
      income (expense), net
                              
                              
                              1.1
                              
                              
                              
                              (8.3
                              )
                              
                              
                              9.4
                              
                              
                              
                              113.7
                              
                              
                              
                              (30.6
                              )
                              
                              
                              (9.6
                              )
                              
                              
                              (21.0
                              )
                              
                              
                              (218.0
                              )Minority
      interests
                              
                              
                              (0.8
                              )
                              
                              
                              (0.4
                              )
                              
                              
                              (0.4
                              )
                              
                              
                              (159.3
                              )
                              
                              
                              —
                              
                              
                              
                              (1.0
                              )
                              
                              
                              1.0
                              
                              
                              
                              96.3Provision
      for income taxes
                              
                              
                              (1.3
                              )
                              
                              
                              (2.2
                              )
                              
                              
                              0.9
                              
                              
                              
                              38.7
                              
                              
                              
                              (10.6
                              )
                              
                              
                              (8.7
                              )
                              
                              
                              (1.9
                              )
                              
                              
                              (20.7
                              )Loss
      from continuing operations
                              
                              
                              (60.4
                              )
                              
                              
                              (83.6
                              )
                              
                              
                              23.2
                              
                              
                              
                              27.7
                              
                              
                              
                              (123.8
                              )
                              
                              
                              (124.7
                              )
                              
                              
                              0.9
                              
                              
                              
                              0.7(Loss)
      income from discontinued operations
                              
                              
                              (3.0
                              )
                              
                              
                              1.4
                              
                              
                              
                              (4.4
                              )
                              
                              
                              (323.6
                              )
                              
                              
                              (38.9
                              )
                              
                              
                              (13.2
                              )
                              
                              
                              (25.7
                              )
                              
                              
                              (195.1
                              )Net
      loss
                              
                              $
                              (63.4
                              )
                              
                              $
                              (82.2
                              )
                              
                              $
                              18.8
                              
                              
                              
                              22.8
                              %
                              
                              $
                              (162.7
                              )
                              
                              $
                              (137.9
                              )
                              
                              $
                              (24.8
                              )
                              
                              
                              (18.0
                              )%
 
 Interest (Expense) Income,
Net. The decrease in net interest in the three and nine months ended
April 30, 2009 compared to the similar periods in fiscal 2008 was primarily due
to a decrease in interest income as a result of lower interest bearing cash,
cash equivalents and marketable securities balances and lower yields on our
interest bearing securities.
   29
 Table of Contents
  Other Income (Expense),
Net. Other income (expense), net in the three and nine months ended
April 30, 2009 and 2008 consists of the following:
  Three months ended
                            April
      30,
                          
                          
                          Nine
      months ended
                            April
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(in
      millions)Realized
      gains (losses) on marketable securities
                          
                          $
                          —
                          
                          
                          $
                          0.4
                          
                          
                          $
                          (1.9
                          )
                          
                          $
                          (10.7
                          )Other
      than temporary decline in value of marketable securities
                          
                          
                          (0.1
                          )
                          
                          
                          (7.5
                          )
                          
                          
                          (6.8
                          )
                          
                          
                          (7.5
                          )Gain
      on sale of subsidiary stock
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          0.3
                          
                          
                          
                          —(Losses)
      on investments
                          
                          
                          (0.2
                          )
                          
                          
                          (2.1
                          )
                          
                          
                          (21.7
                          )
                          
                          
                          (1.3
                          )Equity
      in net loss of AMSO, LLC
                          
                          
                          (0.2
                          )
                          
                          
                          —
                          
                          
                          
                          (0.2
                          )
                          
                          
                          —Foreign
      currency transaction gains
                          
                          
                          1.2
                          
                          
                          
                          1.0
                          
                          
                          
                          2.4
                          
                          
                          
                          5.4Gain
      on sale of building
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          4.1Other
                          
                          
                          0.4
                          
                          
                          
                          (0.1
                          )
                          
                          
                          (2.7
                          )
                          
                          
                          0.4Total
      other income (expense), net
                          
                          $
                          1.1
                          
                          
                          $
                          (8.3
                          )
                          
                          $
                          (30.6
                          )
                          
                          $
                          (9.6
                          )
 
 In the
three and nine months ended April 30, 2009, other income (expense), net included
other than temporary decline in value of $0.1 million and $6.8 million,
respectively, 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 record 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. Accordingly, in the nine months ended April 30, 2009,
we recorded a gain of $0.3 million on the sale of Zedge stock. In the three and
nine months ended April 30, 2008, other income (expense), net included other
than temporary decline in value of certain equity securities of $7.5 million. In
the nine months ended April 30, 2008, other income (expense), net included a
$4.1 million gain on the sale of a building in Newark, New Jersey.
  Minority Interests. Minority
interests arise mostly from the 49% minority owners of UTA, our calling card
distributor in the United States, from the minority owner of our real estate
business and from the 46.67% minority owners of IDW Publishing. The change in
minority interests in the three and nine months ended April 30, 2009 compared to
the similar periods in fiscal 2008 was primarily due to the change in the
minority interests related to UTA and IDW Publishing.
  Income Taxes. Income tax
expense decreased in the three months ended April 30, 2009 compared to the
similar period in fiscal 2008 due primarily to decreases in federal and foreign
income tax expense, partially offset by an increase in our state and local
income tax expense. Income tax expense increased in the nine months ended April
30, 2009 compared to the similar period in fiscal 2008 due primarily to
increases in state and local and foreign income tax expense, partially offset by
a decrease in our federal income tax expense. State and local income taxes
increased as a result of the increase in IDT Energy’s profits. Our foreign
income tax expense results from income generated by our foreign subsidiaries
that cannot be offset against losses generated in the United States. Our federal
income tax expense included interest of $0.5 million and $4.5 million in the
three and nine months ended April 30, 2009, respectively, compared to $2.3
million and $7.0 million in the three and nine months ended April 30, 2008,
respectively.
  As a
result of an IRS audit of our federal tax returns for fiscal years 2001, 2002,
2003 and 2004, we owed approximately $75 million in taxes for fiscal 2001,
approximately $1 million for adjustments carried forward to fiscal 2005 and
2006, and $39.5 million in interest. In connection therewith, we paid $80.0
million of the amount owed between July 2008 and January 2009. On January 27,
2009, we entered into a modified installment agreement with the IRS, whereby we
agreed to pay the remaining amounts owed to the IRS for fiscal years 2001 – 2004
by June 2009. During the third quarter of fiscal 2009, we paid $25.0
million to the IRS on our outstanding balance. By June 15, 2009, we will have
paid an additional $13.4 million to fully satisfy our obligation under the
modified agreement. The final payment may be reduced if the IRS waives the
penalties. In December 2008, the IRS commenced an audit of our federal tax
returns for fiscal years 2005, 2006 and 2007. In May 2009, the IRS assessed
a liability of $1.2 million for fiscal year 2005 which represents the
approximately $1 million previously agreed to plus interest.
  IDT
Telecom—Telecom Platform Services and Consumer Phone Services
Segments
  IDT
Telecom operates two business segments: Telecom Platform Services and Consumer
Phone Services. Beginning in the second quarter of fiscal 2009, the Prepaid
Products segment and the Wholesale Telecommunications Services segment were
combined into the Telecom Platform Services segment, and consumer phone services
outside the United States were transferred from the Consumer Phone Services
segment to Telecom Platform Services. The changes in the second quarter of
fiscal 2009 reflect the overlap in the methods used to provide consumer phone
services outside the United States, prepaid products and wholesale
telecommunications services, as well as the way the operating results are
reported and reviewed by our chief operating decision maker. To the extent
possible, comparative historical results have been reclassified and restated as
if the fiscal 2009 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.
  30
 Table of Contents
  Three months ended
                                    April
      30,
                                  
                                  
                                  Change
                                  
                                  
                                  Nine
      months ended
                                    April
      30,
                                  
                                  
                                  Change2009
                                  
                                  
                                  2008
                                  
                                  
                                  $
                                  
                                  
                                  
                                  %
                                  
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  $
                                  
                                  
                                  
                                  %(in
      millions, except revenue per minute)RevenuesTelecom
      Platform Services
                                  
                                  $
                                  299.6
                                  
                                  
                                  $
                                  342.4
                                  
                                  
                                  $
                                  (42.8
                                  )
                                  
                                  
                                  (12.5
                                  )%
                                  
                                  $
                                  956.1
                                  
                                  
                                  $
                                  1,087.3
                                  
                                  
                                  $
                                  (131.2
                                  )
                                  
                                  
                                  (12.1
                                  )%Consumer
      Phone Services
                                  
                                  
                                  12.5
                                  
                                  
                                  
                                  18.9
                                  
                                  
                                  
                                  (6.4
                                  )
                                  
                                  
                                  (33.7
                                  )
                                  
                                  
                                  42.1
                                  
                                  
                                  
                                  63.7
                                  
                                  
                                  
                                  (21.6
                                  )
                                  
                                  
                                  (33.8
                                  )Total
      revenues
                                  
                                  $
                                  312.1
                                  
                                  
                                  $
                                  361.3
                                  
                                  
                                  $
                                  (49.2
                                  )
                                  
                                  
                                  (13.6
                                  )%
                                  
                                  $
                                  998.2
                                  
                                  
                                  $
                                  1,151.0
                                  
                                  
                                  $
                                  (152.8
                                  )
                                  
                                  
                                  (13.3
                                  )%Minutes
      of useRetail
      calling cards
                                  
                                  
                                  1,780
                                  
                                  
                                  
                                  2,038
                                  
                                  
                                  
                                  (258
                                  )
                                  
                                  
                                  (12.7
                                  )%
                                  
                                  
                                  5,710
                                  
                                  
                                  
                                  6,593
                                  
                                  
                                  
                                  (883
                                  )
                                  
                                  
                                  (13.4
                                  )%Wholesale
      carrier
                                  
                                  
                                  3,490
                                  
                                  
                                  
                                  3,518
                                  
                                  
                                  
                                  (28
                                  )
                                  
                                  
                                  (0.8
                                  )
                                  
                                  
                                  10,537
                                  
                                  
                                  
                                  10,662
                                  
                                  
                                  
                                  (125
                                  )
                                  
                                  
                                  (1.2
                                  )Total
      minutes of use
                                  
                                  
                                  5,270
                                  
                                  
                                  
                                  5,556
                                  
                                  
                                  
                                  (286
                                  )
                                  
                                  
                                  (5.2
                                  )%
                                  
                                  
                                  16,247
                                  
                                  
                                  
                                  17,255
                                  
                                  
                                  
                                  (1,
      008
                                  )
                                  
                                  
                                  (5.8
                                  )%Average
      revenue per minuteRetail
      calling cards
                                  
                                  $
                                  0.0777
                                  
                                  
                                  $
                                  0.0838
                                  
                                  
                                  $
                                  (0.0061
                                  )
                                  
                                  
                                  (7.3
                                  )%
                                  
                                  $
                                  0.0809
                                  
                                  
                                  $
                                  0.0848
                                  
                                  
                                  $
                                  (0.0039
                                  )
                                  
                                  
                                  (4.6
                                  )%Wholesale
      carrier
                                  
                                  
                                  0.0419
                                  
                                  
                                  
                                  0.0448
                                  
                                  
                                  
                                  (0.0029
                                  )
                                  
                                  
                                  (6.3
                                  )
                                  
                                  
                                  0.0429
                                  
                                  
                                  
                                  0.0456
                                  
                                  
                                  
                                  (0.0027
                                  )
                                  
                                  
                                  (6.0
                                  )Total
      average revenue
                                    per minute
                                  
                                  $
                                  0.0540
                                  
                                  
                                  $
                                  0.0591
                                  
                                  
                                  $
                                  (0.0051
                                  )
                                  
                                  
                                  (8.6
                                  )%
                                  
                                  $
                                  0.0562
                                  
                                  
                                  $
                                  0.0606
                                  
                                  
                                  $
                                  (0.0044
                                  )
                                  
                                  
                                  (7.2
                                  )%
 
 Revenues. We experienced
revenue declines in the three and nine months ended April 30, 2009 compared to
the similar periods in fiscal 2008 in both of the IDT Telecom segments.
Approximately $19.0 million and $40.4 million of the decrease in IDT Telecom
revenues in the three and nine months ended April 30, 2009, respectively,
compared to the similar periods in fiscal 2008 was due to changes in foreign
currency exchange rates. The IDT Telecom revenue declines in the three and nine
months ended April 30, 2009 compared to the similar periods in fiscal 2008
primarily occurred in the United States, as IDT Telecom’s international
operations in the aggregate experienced increased revenues in local currencies.
As a percentage of IDT Telecom’s total revenues, Telecom Platform Services
revenues increased from 94.5% in the nine months ended April 30, 2008 to 95.8%
in the nine months ended April 30, 2009, and Consumer Phone Services revenues
decreased from 5.5% in the nine months ended April 30, 2008 to 4.2% in the nine
months ended April 30, 2009.
  Total
minutes of use for Telecom Platform Services declined by 5.2% and 5.8% in the
three and nine months ended April 30, 2009, respectively, compared to the
similar periods in fiscal 2008. 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 decreased 0.8% and 1.2% in the
three and nine months ended April 30, 2009, respectively, compared to the
similar periods in fiscal 2008 as the overall economy softened and we focused on
generating traffic from higher margin destinations. Minutes of use from our
retail activities declined 12.7% and 13.4% in the three and nine months ended
April 30, 2009, respectively, compared to the similar periods in fiscal 2008
primarily due to continued weakness in our calling card businesses in the United
States, Europe, and South America, partially offset by an increase in our retail
business in Asia. The decline in calling card minutes of use arose as a result
of lower calling card sales stemming from competitive pressures and economic
softness, as well as due to our decision to reduce discount pricing on our newly
introduced calling cards. In addition, we believe that there may be a gradual
shift in demand industry-wide away from calling cards and into wireless
products.
  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 8.6% and 7.2% in the three and nine months ended April 30, 2009,
respectively, compared to the similar periods in fiscal 2008. More specifically,
in our retail calling card businesses, average revenue per minute declined 7.3%
and 4.6% in the three and nine months ended April 30, 2009, respectively,
compared to the similar periods in fiscal 2008 as a result of decreases in the
average revenue per minute for all our regions. In our wholesale carrier
business, average revenue per minute decreased 6.3% and 6.0% in the three and
nine months ended April 30, 2009, respectively, compared to the similar periods
in fiscal 2008, due primarily to continued aggressive competition.
  Telecom
Platform Services revenues declined 12.5% and 12.1% in the three and nine months
ended April 30, 2009, respectively, compared to the similar periods in fiscal
2008, primarily due to lower minutes of use worldwide, lower per minute price
realizations and the negative effect from currency translation.
  Consumer
Phone Services revenues declined 33.7% and 33.8% in the three and nine months
ended April 30, 2009, respectively, compared to the similar periods in fiscal
2008, 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 32,300 as of April 30, 2009 compared to 54,200 as of
April 30, 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 108,200 as
of April 30, 2009 compared to 141,800 as of April 30, 2008.
  31
 Table of Contents
  Three months ended
                                              April
      30,
                                            
                                            
                                            Change
                                            
                                            
                                            Nine
      months ended
                                              April
      30,
                                            
                                            
                                            Change2009
                                            
                                            
                                            2008
                                            
                                            
                                            $
                                            
                                            
                                            
                                            %
                                            
                                            
                                            2009
                                            
                                            
                                            2008
                                            
                                            
                                            $
                                            
                                            
                                            
                                            %(in
      millions, except cost per minute)Direct
      cost of revenuesTelecom
      Platform Services
                                            
                                            $
                                            239.8
                                            
                                            
                                            $
                                            276.3
                                            
                                            
                                            $
                                            (36.5
                                            )
                                            
                                            
                                            (13.2
                                            )%
                                            
                                            $
                                            770.0
                                            
                                            
                                            $
                                            871.5
                                            
                                            
                                            $
                                            (101.5
                                            )
                                            
                                            
                                            (11.6
                                            )%Consumer
      Phone Services
                                            
                                            
                                            5.9
                                            
                                            
                                            
                                            6.1
                                            
                                            
                                            
                                            (0.2
                                            )
                                            
                                            
                                            (4.0
                                            )
                                            
                                            
                                            18.0
                                            
                                            
                                            
                                            28.3
                                            
                                            
                                            
                                            (10.3
                                            )
                                            
                                            
                                            (36.6
                                            )Total
      direct cost of revenues
                                            
                                            $
                                            245.7
                                            
                                            
                                            $
                                            282.4
                                            
                                            
                                            $
                                            (36.7
                                            )
                                            
                                            
                                            (13.0
                                            )%
                                            
                                            $
                                            788.0
                                            
                                            
                                            $
                                            899.8
                                            
                                            
                                            $
                                            (111.8
                                            )
                                            
                                            
                                            (12.4
                                            )%Average
      termination cost per minuteRetail
      calling cards
                                            
                                            $
                                            0.0613
                                            
                                            
                                            $
                                            0.0666
                                            
                                            
                                            $
                                            (0.0053
                                            )
                                            
                                            
                                            (7.9
                                            )%
                                            
                                            $
                                            0.0644
                                            
                                            
                                            $
                                            0.0668
                                            
                                            
                                            $
                                            (0.0024
                                            )
                                            
                                            
                                            (3.6
                                            )%Wholesale
      carrier
                                            
                                            
                                            0.0371
                                            
                                            
                                            
                                            0.0389
                                            
                                            
                                            
                                            (0.0018
                                            )
                                            
                                            
                                            (4.7
                                            )
                                            
                                            
                                            0.0377
                                            
                                            
                                            
                                            0.0392
                                            
                                            
                                            
                                            (0.0015
                                            )
                                            
                                            
                                            (3.9
                                            )Total
      average termination cost
                                              per minute
                                            
                                            $
                                            0.0452
                                            
                                            
                                            $
                                            0.0490
                                            
                                            
                                            $
                                            (0.0038
                                            )
                                            
                                            
                                            (7.7
                                            )%
                                            
                                            $
                                            0.0470
                                            
                                            
                                            $
                                            0.0497
                                            
                                            
                                            $
                                            (0.0027
                                            )
                                            
                                            
                                            (5.3
                                            )%
 
 Direct Cost of Revenues.
Direct
cost of revenues of IDT Telecom decreased in the three and nine months ended
April 30, 2009 compared to the similar periods in fiscal 2008 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 $17.7 million and $37.2 million of the decrease in IDT
Telecom’s direct cost of revenues in the three and nine months ended April 30,
2009, respectively, compared to the similar periods in fiscal 2008 was due to
changes in foreign currency exchange rates. In addition, Telecom Platform
Services direct cost of revenues decreased due to continued reductions in
connectivity costs as we continue to reduce excess capacity in our network. 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. In addition to the connectivity savings, the decrease in
Telecom Platform Services direct cost of revenues in the three and nine months
ended April 30, 2009 compared to the similar periods in fiscal 2008 was due to
lower minutes of use and a lower termination cost per minute. Direct cost of
revenues for Consumer Phone Services decreased in the three and nine months
ended April 30, 2009 compared to the similar periods in fiscal 2008, due
primarily to lower revenues stemming from the lower customer count. The decrease
in direct cost of revenues for Consumer Phone Services would have been greater
if not for the favorable settlement in the third quarter of fiscal 2008 of a
long-standing dispute with one our connectivity suppliers which reduced the
direct cost of revenues in the three and nine months ended April 30,
2008.
  Three months ended
                                April
      30,
                              
                              
                              
                              
                              
                              Nine months ended
                                April
      30,2009
                              
                              
                              2008
                              
                              
                              Change
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              ChangeGross
      margin percentageTelecom
      Platform Services
                              
                              
                              19.9
                              %
                              
                              
                              19.3
                              %
                              
                              
                              0.6
                              %
                              
                              
                              19.5
                              %
                              
                              
                              19.9
                              %
                              
                              
                              (0.4
                              )%Consumer
      Phone Services
                              
                              
                              53.2
                              
                              
                              
                              67.7
                              
                              
                              
                              (14.5
                              )
                              
                              
                              57.4
                              
                              
                              
                              55.5
                              
                              
                              
                              1.9Total
      gross margin percentage
                              
                              
                              21.3
                              %
                              
                              
                              21.9
                              %
                              
                              
                              (0.6
                              )%
                              
                              
                              21.1
                              %
                              
                              
                              21.8
                              %
                              
                              
                              (0.7
                              )%
  Gross Margins. Gross margins
in our Telecom Platform Services segment increased in the three months ended
April 30, 2009 compared to the similar period in fiscal 2008, primarily due to
the decrease in direct cost of revenues described above which exceeded the
decrease in revenues. Gross margins in our Telecom Platform Services segment
decreased in the nine months ended April 30, 2009 compared to the similar period
in fiscal 2008, primarily due to lower profit per minute derived from our U.S.
prepaid calling card and our wholesale carrier businesses, partially offset by a
higher profit per minute on our calling card sales in other
regions.
  Gross
margins in our Consumer Phone Services segment decreased in the three months
ended April 30, 2009 compared to the similar period in fiscal 2008 primarily as
a result of the favorable settlement in the third quarter of fiscal 2008 of a
long-standing dispute with one our connectivity suppliers which reduced the
direct cost of revenues in the three months ended April 30, 2008. Gross margins
in our Consumer Phone Services segment increased in the nine months ended April
30, 2009 compared to the similar period in fiscal 2008 due to the reversal in
the second quarter of fiscal 2009 of certain costs that were previously accrued,
as well as due to a change in our customer mix towards higher margin long
distance-only customers, which have been churning at a much slower rate than our
bundled, unlimited local and long distance customers, and as a result of certain
price increases that we implemented beginning in the fourth quarter of fiscal
2008.
  32
 Table of Contents
  Three months ended
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)Selling,
      general and administrative expensesTelecom
      Platform Services
                            
                            $
                            50.5
                            
                            
                            $
                            71.6
                            
                            
                            $
                            (21.1
                            )
                            
                            
                            (29.5
                            )%
                            
                            $
                            161.8
                            
                            
                            $
                            215.6
                            
                            
                            $
                            (53.8
                            )
                            
                            
                            (25.0
                            )%Consumer
      Phone Services
                            
                            
                            2.7
                            
                            
                            
                            2.9
                            
                            
                            
                            (0.2
                            )
                            
                            
                            (8.3
                            )
                            
                            
                            8.8
                            
                            
                            
                            11.3
                            
                            
                            
                            (2.5
                            )
                            
                            
                            (21.7
                            )Total
      selling, general and administrative expenses
                            
                            $
                            53.2
                            
                            
                            $
                            74.5
                            
                            
                            $
                            (21.3
                            )
                            
                            
                            (28.7
                            )%
                            
                            $
                            170.6
                            
                            
                            $
                            226.9
                            
                            
                            $
                            (56.3
                            )
                            
                            
                            (24.8
                            )%
 
 Selling, General and
Administrative. The decrease in selling, general and administrative
expenses in IDT Telecom in the three and nine months ended April 30, 2009
compared to the similar periods in fiscal 2008 was primarily due to reductions
in headcount, changes to employee benefit and bonus programs, reductions in
facilities and maintenance costs, as well as reduced advertising and marketing
expenses and lower legal and other professional fees. Compensation and benefit
costs for the nine months ended April 30, 2009 included one-time reductions of
$1.4 million related to the 401(k) plan employer matching contributions and a
refund of New Jersey unemployment taxes. Compensation and benefit costs run
rates are expected to decline further as a result of the headcount reductions
and other initiatives achieved through April 30, 2009. As a percentage of IDT
Telecom’s total revenues, selling, general and administrative expenses decreased
from 20.6% and 19.7% in the three and nine months ended April 30, 2008,
respectively, to 17.0% and 17.1% in the three and nine months ended April 30,
2009, respectively, as IDT Telecom’s selling, general and administrative
expenses decreased at a faster rate than its revenues.
  Three months ended
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)Bad
      debt expenseTelecom
      Platform Services
                            
                            $
                            2.1
                            
                            
                            $
                            2.2
                            
                            
                            $
                            (0.1
                            )
                            
                            
                            (5.0
                            )%
                            
                            $
                            6.3
                            
                            
                            $
                            4.3
                            
                            
                            $
                            2.0
                            
                            
                            
                            46.3
                            %Consumer
      Phone Services
                            
                            
                            0.4
                            
                            
                            
                            0.5
                            
                            
                            
                            (0.1
                            )
                            
                            
                            (29.3
                            )
                            
                            
                            (0.4
                            )
                            
                            
                            2.8
                            
                            
                            
                            (3.2
                            )
                            
                            
                            (114.7
                            )Total
      bad debt expense
                            
                            $
                            2.5
                            
                            
                            $
                            2.7
                            
                            
                            $
                            (0.2
                            )
                            
                            
                            (9.4
                            )%
                            
                            $
                            5.9
                            
                            
                            $
                            7.1
                            
                            
                            $
                            (1.2
                            )
                            
                            
                            (17.8
                            )%
  Bad Debt Expense.Bad debt
expense in our Telecom Platform Services segment was basically the same in the
three months ended April 30, 2009 and 2008. The increase in bad debt expense in
our Telecom Platform Services segment in the nine months ended April 30, 2009
compared to the similar period in fiscal 2008 was the result of an increase in
our provisions due to concerns about the liquidity of certain of our
distributors and customers. The decrease in bad debt expense in the three and
nine months ended April 30, 2009 compared to the similar periods in fiscals 2008
in our Consumer Phone Services segment was primarily due to the decrease in
revenues and due to evaluations of the outstanding receivables in the three and
nine months ended April 30, 2009 that resulted in adjustments to our
provisions.
  Three months ended
                                April
      30,
                              
                              
                              Change
                              
                              
                              Nine months ended
                                April
      30,
                              
                              
                              Change2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %(in
      millions)Research
      and development expensesTelecom
      Platform Services
                              
                              $
                              0.8
                              
                              
                              $
                              2.6
                              
                              
                              $
                              (1.8
                              )
                              
                              
                              (69.8
                              )%
                              
                              $
                              2.4
                              
                              
                              $
                              3.6
                              
                              
                              $
                              (1.2
                              )
                              
                              
                              (33.4
                              )%Consumer
      Phone Services
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Total
      research and development expenses
                              
                              $
                              0.8
                              
                              
                              $
                              2.6
                              
                              
                              $
                              (1.8
                              )
                              
                              
                              (69.8
                              )%
                              
                              $
                              2.4
                              
                              
                              $
                              3.6
                              
                              
                              $
                              (1.2
                              )
                              
                              
                              (33.4
                              )%
  Research and Development.Research and development expenses in our Telecom Platform Services
segment in the three and nine months ended April 30, 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
                                April
      30,
                              
                              
                              Change
                              
                              
                              Nine months ended
                                April
      30,
                              
                              
                              Change2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %(in
      millions)ImpairmentsTelecom
      Platform Services
                              
                              $
                              29.0
                              
                              
                              $
                              —
                              
                              
                              $
                              29.0
                              
                              
                              nm
                              
                              
                              $
                              29.1
                              
                              
                              $
                              0.2
                              
                              
                              $
                              28.9
                              
                              
                              nmConsumer
      Phone Services
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Total
      impairments
                              
                              $
                              29.0
                              
                              
                              $
                              —
                              
                              
                              $
                              29.0
                              
                              
                              nm
                              
                              
                              $
                              29.1
                              
                              
                              $
                              0.2
                              
                              
                              $
                              28.9
                              
                              
                              nm
  nm—not
meaningful
  33
 Table of Contents
  Impairments. In the second
quarter of fiscal 2009, certain events and circumstances indicated that the fair
value of IDT Telecom’s reporting units may be below their carrying value. We
measured the fair value of our reporting units by discounting their estimated
future cash flows using an appropriate discount rate. The carrying value
including goodwill of IDT Telecom’s Rechargeable reporting unit exceeded its
estimated fair value, therefore we performed additional steps to determine
whether an impairment of goodwill was required. As a result of this analysis, in
the three and nine months ended April 30, 2009, we recorded preliminary goodwill
impairment of $29.0 million, which is subject to adjustment. The preliminary
goodwill impairment reduced the carrying amount of Rechargeable’s goodwill to
zero. We recorded the preliminary amount because it was probable that goodwill
was impaired, and the amount of impairment could be reasonably estimated. On
April 30, 2009, IDT Telecom’s remaining goodwill was $5.5 million. Calculating
the fair value of the reporting units requires significant estimates and
assumptions. Should these estimates or assumptions prove to be incorrect, we may
record additional goodwill impairment or adjust our preliminary impairment in
future periods.
  Three months ended
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)Restructuring
      chargesTelecom
      Platform Services
                            
                            $
                            0.3
                            
                            
                            $
                            11.4
                            
                            
                            $
                            (11.1
                            )
                            
                            
                            (97.4
                            )%
                            
                            $
                            4.2
                            
                            
                            $
                            13.4
                            
                            
                            $
                            (9.2
                            )
                            
                            
                            (68.8
                            )%Consumer
      Phone Services
                            
                            
                            —
                            
                            
                            
                            0.5
                            
                            
                            
                            (0.5
                            )
                            
                            
                            (100.0
                            )
                            
                            
                            —
                            
                            
                            
                            0.5
                            
                            
                            
                            (0.5
                            )
                            
                            
                            (100.0
                            )Total
      restructuring charges
                            
                            $
                            0.3
                            
                            
                            $
                            11.9
                            
                            
                            $
                            (11.6
                            )
                            
                            
                            (97.5
                            )%
                            
                            $
                            4.2
                            
                            
                            $
                            13.9
                            
                            
                            $
                            (9.7
                            )
                            
                            
                            (70.0
                            )%
  Restructuring Charges. The
restructuring charges in the three and nine months ended April 30, 2009 and 2008
consisted primarily of severance related to a company-wide cost savings program
and reduction in force. The restructuring charges in the nine months ended April
30, 2009 also included costs for the shutdown or consolidation of certain
facilities of $0.8 million, and are net of the reversal of accrued severance of
$2.6 million in the first quarter of fiscal 2009 as a result of modifications to
retention and/or severance agreements with certain employees.
  Three months ended
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)Depreciation
      and amortizationTelecom
      Platform Services
                            
                            $
                            10.0
                            
                            
                            $
                            13.6
                            
                            
                            $
                            (3.6
                            )
                            
                            
                            (26.3
                            )%
                            
                            $
                            32.1
                            
                            
                            $
                            42.1
                            
                            
                            $
                            (10.0
                            )
                            
                            
                            (23.8
                            )%Consumer
      Phone Services
                            
                            
                            0.1
                            
                            
                            
                            0.7
                            
                            
                            
                            (0.6
                            )
                            
                            
                            (93.0
                            )
                            
                            
                            0.4
                            
                            
                            
                            2.2
                            
                            
                            
                            (1.8
                            )
                            
                            
                            (80.3
                            )Total
      depreciation and amortization
                            
                            $
                            10.1
                            
                            
                            $
                            14.3
                            
                            
                            $
                            (4.2
                            )
                            
                            
                            (29.6
                            )%
                            
                            $
                            32.5
                            
                            
                            $
                            44.3
                            
                            
                            $
                            (11.8
                            )
                            
                            
                            (26.6
                            )%
 
 Depreciation and
Amortization. The decrease in depreciation and amortization expense in
the three and nine months ended April 30, 2009 compared to the similar periods
in fiscal 2008 was primarily due to property, plant and equipment becoming fully
depreciated and a decrease in capital expenditures.
  Arbitration Award Income. In
November 2007, our Net2Phone Cable Telephony subsidiary, which is included
in our Telecom Platform Services segment, was awarded approximately
€23 million, plus interest from November 2005, in an arbitration proceeding
against Altice One S.A. and certain of its affiliates. The arbitration
proceeding related to Altice’s termination of cable telephony license agreements
Net2Phone Cable Telephony had entered into in November 2004. We recorded a gain
of $40.0 million for this arbitration award, including accrued interest, in the
three months ended October 31, 2007, which is included in loss from
operations in the nine months ended April 30, 2008.
  Three months ended
                                  April
      30,
                                
                                
                                Change
                                
                                
                                Nine months ended
                                  April
      30,
                                
                                
                                Change2009
                                
                                
                                2008
                                
                                
                                $
                                
                                
                                
                                %
                                
                                
                                2009
                                
                                
                                2008
                                
                                
                                $
                                
                                
                                
                                %(in
      millions)(Loss)
      income from operationsTelecom
      Platform Services
                                
                                $
                                (33.0
                                )
                                
                                $
                                (35.4
                                )
                                
                                $
                                2.4
                                
                                
                                
                                6.9
                                %
                                
                                $
                                (49.6
                                )
                                
                                $
                                (23.4
                                )
                                
                                $
                                (26.2
                                )
                                
                                
                                (111.7
                                )%Consumer
      Phone Services
                                
                                
                                3.6
                                
                                
                                
                                8.2
                                
                                
                                
                                (4.6
                                )
                                
                                
                                (56.2
                                )
                                
                                
                                15.3
                                
                                
                                
                                18.4
                                
                                
                                
                                (3.1
                                )
                                
                                
                                (17.0
                                )Total
      (loss) income from operations
                                
                                $
                                (29.4
                                )
                                
                                $
                                (27.2
                                )
                                
                                $
                                (2.2
                                )
                                
                                
                                (8.0
                                )%
                                
                                $
                                (34.3
                                )
                                
                                $
                                (5.0
                                )
                                
                                $
                                (29.3
                                )
                                
                                
                                (588.6
                                )%
  34
 Table of Contents
  IDT
Energy Segment
  Three months ended
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)Revenues
                            
                            $
                            66.7
                            
                            
                            $
                            66.3
                            
                            
                            $
                            0.4
                            
                            
                            
                            0.6
                            %
                            
                            $
                            227.7
                            
                            
                            $
                            173.4
                            
                            
                            $
                            54.3
                            
                            
                            
                            31.3
                            %Direct
      cost of revenues
                            
                            
                            46.9
                            
                            
                            
                            59.9
                            
                            
                            
                            (13.0
                            )
                            
                            
                            (21.7
                            )
                            
                            
                            164.9
                            
                            
                            
                            154.8
                            
                            
                            
                            10.1
                            
                            
                            
                            6.5Selling,
      general and administrative
                            
                            
                            6.9
                            
                            
                            
                            5.3
                            
                            
                            
                            1.6
                            
                            
                            
                            29.5
                            
                            
                            
                            21.4
                            
                            
                            
                            13.7
                            
                            
                            
                            7.7
                            
                            
                            
                            56.2Bad
      debt expense
                            
                            
                            0.1
                            
                            
                            
                            0.2
                            
                            
                            
                            (0.1
                            )
                            
                            
                            (82.7
                            )
                            
                            
                            1.0
                            
                            
                            
                            0.3
                            
                            
                            
                            0.7
                            
                            
                            
                            207.1Restructuring
      charges
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            0.1
                            
                            
                            
                            (0.1
                            )
                            
                            
                            (83.3
                            )Income
      from operations
                            
                            $
                            12.8
                            
                            
                            $
                            0.9
                            
                            
                            $
                            11.9
                            
                            
                            nm
                            
                            
                            $
                            40.4
                            
                            
                            $
                            4.5
                            
                            
                            $
                            35.9
                            
                            
                            
                            805.2
                            %
 nm—not
meaningful
 
 Revenues. IDT Energy’s
revenues consisted of electricity sales of $30.3 million and $125.0 million in
the three and nine months ended April 30, 2009, respectively, compared to $29.9
million and $94.1 million in the same periods in fiscal 2008, and natural gas
sales of $36.4 million and $102.7 million in the three and nine months ended
April 30, 2009, respectively, compared to $36.4 million and $79.3 million in the
same periods in fiscal 2008. 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.
  We
experienced higher electricity revenues in the three months ended April 30, 2009
compared to the same period in fiscal 2008 primarily as a result of increased
electricity consumption by our larger customer base as well as an increase in
electricity consumption per meter, although average electricity rates charged to
customers declined. We experienced higher electricity revenues in the nine
months ended April 30, 2009 compared to the same period in fiscal 2008 primarily
as a result of increased electricity consumption by our larger customer base, an
increase in electricity consumption per meter and an increase in average
electricity rates charged to customers. We experienced flat natural gas revenues
in the three months ended April 30, 2009 compared to the same period in fiscal
2008 as a result of increased natural gas consumption by our larger customer
base, offset by a decrease in average natural gas rates charged to customers. We
experienced higher natural gas revenues in the nine months ended April 30, 2009
compared to the same period in fiscal 2008 as a result of increased natural gas
consumption by our larger customer base, including increases in natural gas
consumption per meter, partially offset by a decrease in average natural gas
rates charged to customers. As of April 30, 2009, IDT Energy’s subscriber base
consisted of approximately 414,000 meters compared to 343,000 meters as of April
30, 2008.
  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 markets to determine if they are ripe for
entry. IDT Energy’s 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 purchases natural gas through wholesale suppliers and various utility
companies, and electricity through the New York State competitive wholesale
market for capacity, energy and ancillary services administrated by the
NYISO—New York’s Independent System Operator. IDT Energy’s direct cost of
revenues consisted of electricity cost of $18.0 million and $79.3 million in the
three and nine months ended April 30, 2009, respectively, compared to $26.3
million and $82.7 million in the same periods in fiscal 2008, and cost of
natural gas of $28.9 million and $85.6 million in the three and nine months
ended April 30, 2009, respectively, compared to $33.6 million and $72.1 million
in the same periods in fiscal 2008. Direct cost of revenues for electricity
decreased in the three and nine months ended April 30, 2009 compared to the same
periods in fiscal 2008 primarily due to significant decreases in the average
unit cost during the periods. Direct cost of revenues for natural gas decreased
in the three months ended April 30, 2009 compared to the same period in fiscal
2008 primarily due to the decrease in the average unit cost. Direct cost of
revenues for natural gas increased in the nine months ended April 30, 2009
compared to the same period in fiscal 2008 primarily due to the increase in
consumption although the average unit cost decreased.
  Gross
margins in IDT Energy increased to 29.7% and 27.6% in the three and nine months
ended April 30, 2009, respectively, compared to 9.7% and 10.7% in the comparable
periods in fiscal 2008. Comprising these figures were gross margins on
electricity sales in the three and nine months ended April 30, 2009 of 40.8% and
36.5%, respectively, compared to 12.0% and 12.1% in the comparable periods in
fiscal 2008 and gross margins on natural gas sales in the three and nine months
ended April 30, 2009 of 20.4% and 16.7%, respectively, compared to 7.8% and 9.0%
in the comparable periods in fiscal 2008. The gross margin increases in the
three and nine months ended April 30, 2009 compared to the same periods in
fiscal 2008 occurred primarily because our average unit cost of electricity and
natural gas decreased, particularly the decrease in our average unit cost of
electricity in the three months ended April 30, 2009. 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.
  35
 Table of Contents
  Selling, General and
Administrative. The increase in selling, general and administrative
expenses in the three and nine months ended April 30, 2009 as compared to the
comparable periods in fiscal 2008 was due primarily to increases in billing
related fees. In addition, the increase in selling, general and administrative
expenses in the nine months ended April 30, 2009 as compared to the comparable
period in fiscal 2008 was also due to increases in customer acquisition costs
and compensation expense. The increase in billing related fees in the three and
nine months ended April 30, 2009 as compared to the comparable periods in fiscal
2008 was a result of increases in the fees charged by certain utilities for
their POR programs, which reflected the increase in bad debt risk assumed by the
utilities through these programs, as well as the transition of a significant
portion of IDT Energy’s unguaranteed receivables to a POR program in the three
months ended April 30, 2009. Customer acquisition costs increased in the nine
months ended April 30, 2009 as compared to the comparable period in fiscal 2008
primarily due to increases in the commission paid to acquire new customers
subsequent to the first quarter of fiscal 2008. Customer acquisition costs
decreased in the three months ended April 30, 2009 as compared to the comparable
period in fiscal 2008 primarily due to less customers added in the current
period. Compensation expense increased in the nine months ended April 30, 2009
as compared to the comparable period in fiscal 2008 primarily due to an increase
in bonus expense, which is based on a profit sharing plan that was finalized
subsequent to the first quarter of fiscal 2008, although compensation expense
decreased in the three months ended April 30, 2009 as compared to the comparable
period in fiscal 2008 due to a decrease in bonus expense reflecting a
modification to the potential payment under the plan. As a percentage of total
IDT Energy revenues, selling, general and administrative expenses increased from
8.1% and 7.9% in the three and nine months ended April 30, 2008, respectively,
to 10.4% and 9.4% in the three and nine months ended April 30, 2009,
respectively, due to the increases in selling, general and administrative
expenses described above.
  Bad Debt Expense. The
decrease in bad debt expense in the three months ended April 30, 2009 as
compared to the comparable period in fiscal 2008 was due primarily to the
transition of a significant portion of IDT Energy’s unguaranteed receivables to
a POR program in the three months ended April 30, 2009. The increase in bad debt
expense in the nine months ended April 30, 2009 as compared to the comparable
period in fiscal 2008 was due primarily to the increase in revenues and the
resulting increase in the allowance for receivables that were not guaranteed
under POR programs.
  IDT
Capital
  In the
first quarter of fiscal 2009, certain real estate investments that were
historically included in Corporate were transferred to IDT Capital, and IDW
Publishing was transferred from the IDT Internet Mobile Group in IDT Capital to
IDT Local Media in IDT Capital. The other component of the IDT Internet Mobile
Group, Zedge, is now included in the “all other” lines of business in IDT
Capital. To the extent possible, comparative historical results for IDT Capital,
IDT Telecom and Corporate have been reclassified and restated to conform to the
current business segment presentation, 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
                            April
      30,
                          
                          
                          Change
                          
                          
                          Nine months ended
                            April
      30,
                          
                          
                          Change2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %
                          
                          
                          2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %(in
      millions)RevenuesLocal
      Media
                          
                          $
                          7.1
                          
                          
                          $
                          7.5
                          
                          
                          $
                          (0.4
                          )
                          
                          
                          (4.6
                          )%
                          
                          $
                          23.4
                          
                          
                          $
                          22.3
                          
                          
                          $
                          1.1
                          
                          
                          
                          5.2
                          %Alternative
      Energy
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —All
      other
                          
                          
                          3.0
                          
                          
                          
                          5.6
                          
                          
                          
                          (2.6
                          )
                          
                          
                          (46.1
                          )
                          
                          
                          9.4
                          
                          
                          
                          16.8
                          
                          
                          
                          (7.4
                          )
                          
                          
                          (44.2
                          )Total
      revenues
                          
                          $
                          10.1
                          
                          
                          $
                          13.1
                          
                          
                          $
                          (3.0
                          )
                          
                          
                          (22.4
                          )%
                          
                          $
                          32.8
                          
                          
                          $
                          39.1
                          
                          
                          $
                          (6.3
                          )
                          
                          
                          (16.1
                          )%
 
 Revenues. The decrease in IDT
Capital’s revenues in the three and nine months ended April 30, 2009 compared to
the similar periods in fiscal 2008 was due to a decrease in revenues in the “all
other” lines of business, partially offset by an increase in Local Media
revenues in the nine months ended April 30, 2009 compared to the similar period
in fiscal 2008. Revenues in the “all other” lines of business decreased in the
three and nine months ended April 30, 2009 compared to the similar periods in
fiscal 2008 primarily due to the disposition of IDT Global Israel, Ltd., our
call center operations in Israel, in the fourth quarter of fiscal 2008, as well
as the disposition of an additional business in the first quarter of fiscal
2009. These two businesses generated revenues of $2.4 million and $6.9 million
in the three and nine months ended April 30, 2008, respectively. Local Media
revenues decreased in the three months ended April 30, 2009 compared to the
similar period in fiscal 2008 primarily as a result of a decrease in CTM Media
Group revenues partially offset by an increase in IDW Publishing revenues. CTM
Media Group revenues decreased primarily as a result of the economic slowdown
which reduced its brochure distribution business. IDW Publishing revenues
increased primarily due to sales of new titles related to recently released and
upcoming action movies. Local Media revenues increased in the nine months ended
April 30, 2009 compared to the similar periods in fiscal 2008 primarily as a
result of an increase in IDW Publishing revenues partially offset by a decrease
in CTM Media Group revenues. IDW Publishing revenues increased primarily as a
result of an increase in titles sold. CTM Media Group revenues decreased
primarily as a result of the economic slowdown which reduced its brochure
distribution business in the third quarter of fiscal 2009, offset by rate
increases, the addition of new customers and the addition of two new lines of
business, all of which occurred in the first half of fiscal 2009.
  36
 Table of Contents
  Three months ended
                            April
      30,
                          
                          
                          Change
                          
                          
                          Nine months ended
                            April
      30,
                          
                          
                          Change2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %
                          
                          
                          2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          
                          %(in
      millions)Direct
      cost of revenuesLocal
      Media
                          
                          $
                          2.9
                          
                          
                          $
                          3.1
                          
                          
                          $
                          (0.2
                          )
                          
                          
                          (5.6
                          )%
                          
                          $
                          9.9
                          
                          
                          $
                          9.0
                          
                          
                          $
                          0.9
                          
                          
                          
                          9.8
                          %Alternative
      Energy
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —All
      other
                          
                          
                          0.2
                          
                          
                          
                          5.2
                          
                          
                          
                          (5.0
                          )
                          
                          
                          (96.5
                          )
                          
                          
                          1.2
                          
                          
                          
                          14.0
                          
                          
                          
                          (12.8
                          )
                          
                          
                          (91.7
                          )Total
      direct cost of revenues
                          
                          $
                          3.1
                          
                          
                          $
                          8.3
                          
                          
                          $
                          (5.2
                          )
                          
                          
                          (62.5
                          )%
                          
                          $
                          11.1
                          
                          
                          $
                          23.0
                          
                          
                          $
                          (11.9
                          )
                          
                          
                          (52.0
                          )%
 
 Direct Cost of Revenues. The
decrease in direct cost of revenues in the three and nine months ended April 30,
2009 compared to the similar periods in fiscal 2008 was primarily due to a
decrease in the direct cost of revenues in the “all other” lines of business,
which was primarily due to the disposition of IDT Global Israel in the fourth
quarter of fiscal 2008 and an additional business in the first quarter of fiscal
2009. These two businesses incurred direct cost of revenues of $4.2 million and
$10.6 million in the three and nine months ended April 30, 2008,
respectively.
  IDT
Capital’s aggregate gross margin increased from 36.6% and 41.2% in three and
nine months ended April 30, 2008, respectively, to 69.4% and 66.4% in the three
and nine months ended April 30, 2009, respectively, primarily due to the
disposition of IDT Global Israel in the fourth quarter of fiscal 2008. IDT
Global Israel had negative gross margins throughout fiscal 2008. Local Media’s
gross margin increased from 58.5% in the three months ended April 30, 2008 to
59.0% in the three months ended April 30, 2009 primarily due to an increase in
the gross margin of IDW Publishing, which generally experiences an improvement
in gross margin as the sales volume of individual titles increases. Local
Media’s gross margin declined from 59.6% in the nine months ended April 30, 2008
to 57.9% in the nine months ended April 30, 2009 primarily due to the increase
in direct cost of revenues which exceeded the increase in revenues.
  Three months ended
                                April
      30,
                              
                              
                              Change
                              
                              
                              Nine months ended
                                April
      30,
                              
                              
                              Change2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              $
                              
                              
                              
                              %(in
      millions)Selling,
      general and administrative expensesLocal
      Media
                              
                              $
                              4.4
                              
                              
                              $
                              5.2
                              
                              
                              $
                              (0.8
                              )
                              
                              
                              (16.9
                              )%
                              
                              $
                              12.6
                              
                              
                              $
                              15.9
                              
                              
                              $
                              (3.3
                              )
                              
                              
                              (20.5
                              )%Alternative
      Energy
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —All
      other
                              
                              
                              3.9
                              
                              
                              
                              8.3
                              
                              
                              
                              (4.4
                              )
                              
                              
                              (53.2
                              )
                              
                              
                              12.1
                              
                              
                              
                              31.7
                              
                              
                              
                              (19.6
                              )
                              
                              
                              (61.8
                              )Total
      selling, general and administrative expenses
                              
                              $
                              8.3
                              
                              
                              $
                              13.5
                              
                              
                              $
                              (5.2
                              )
                              
                              
                              (38.8
                              )%
                              
                              $
                              24.7
                              
                              
                              $
                              47.6
                              
                              
                              $
                              (22.9
                              )
                              
                              
                              (47.8
                              )%
 
 Selling, General and
Administrative. Selling,
general and administrative expenses decreased in the three and nine months ended
April 30, 2009 compared to the similar periods in fiscal 2008 primarily due to a
decrease in the selling, general and administrative expenses in the “all other”
lines of business. The “all other” decrease was due to the divestiture of many
non-profitable businesses during the past year as we continue to focus on our
core operations, as well as a decrease in legal fees related to ongoing
litigation related to certain of our intellectual property, and in the second
quarter of fiscal 2009, a $1.7 million real estate tax refund for prior periods
awarded to us on appeal. As a percentage of IDT Capital’s aggregate revenues,
selling, general and administrative expenses decreased from 103.4% and 121.8% in
the three and nine months ended April 30, 2008, respectively, to 81.5% and 75.7%
in the three and nine months ended April 30, 2009,
respectively.
  Research and Development.Research and development expenses in three and nine months ended April
30, 2009 and 2008 consist of the following:
  Three months ended
                            April
      30,
                          
                          
                          Nine
      months ended
                            April
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(in
      millions)Alternative
      Energy:AMSO
                          
                          $
                          0.1
                          
                          
                          $
                          6.0
                          
                          
                          $
                          3.2
                          
                          
                          $
                          6.0Israel
      Energy Initiatives, Ltd.
                          
                          
                          0.6
                          
                          
                          
                          0.2
                          
                          
                          
                          2.4
                          
                          
                          
                          0.2Total
      research and development expenses
                          
                          $
                          0.7
                          
                          
                          $
                          6.2
                          
                          
                          $
                          5.6
                          
                          
                          $
                          6.2
   37
 Table of Contents
  Alternative
Energy includes (1) AMSO, which commenced its research and development
activities in the third quarter of fiscal 2008 upon its acquisition of AMSO,
LLC, which is one of three holders of 10-year leases granted by the U.S. Bureau
of Land Management to research, develop and demonstrate in-situ technologies for
potential commercial shale oil production in western Colorado, and (2) IEI,
our Israeli alternative energy venture, which was granted a license in Israel in
the fourth quarter of fiscal 2008 to explore certain public lands for potential
production of shale oil. In April 2008, we acquired equity interests of
approximately 90% in AMSO, LLC primarily in exchange for cash of $5.5 million in
transactions accounted for under the purchase method of accounting. We charged
an aggregate of $5.5 million to research and development expense at the
acquisition date, which includes amounts assigned to AMSO, LLC’s tangible and
intangible assets to be used in its research and development project that have
no alternative future use. 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 capital requirements going forward. We no
longer consolidate AMSO, LLC as of the closing of the transaction with Total,
instead, we account for our 50% ownership interest in AMSO, LLC using the equity
method.
  Impairments. Impairments
in the three and nine months ended April 30, 2009 and 2008 consist of the
following:
  Three months ended
                                April
      30,
                              
                              
                              Nine
      months ended
                                April
      30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(in
      millions)Goodwill:Local
      Media – CTM Media Group
                              
                              $
                              29.7
                              
                              
                              $
                              —
                              
                              
                              $
                              29.7
                              
                              
                              $
                              —Local
      Media – WMET
                              
                              
                              1.2
                              
                              
                              
                              —
                              
                              
                              
                              1.2
                              
                              
                              
                              —Local
      Media – IDW Publishing
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              1.8
                              
                              
                              
                              —Total
      goodwill
                              
                              
                              30.9
                              
                              
                              
                              —
                              
                              
                              
                              32.7
                              
                              
                              
                              —FCC
      licenses
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              5.3
                              
                              
                              
                              —Other
      assets
                              
                              
                              2.3
                              
                              
                              
                              —
                              
                              
                              
                              5.8
                              
                              
                              
                              —Total
      impairments
                              
                              $
                              33.2
                              
                              
                              $
                              —
                              
                              
                              $
                              43.8
                              
                              
                              $
                              —
 
 In the
second quarter of fiscal 2009, certain events and circumstances indicated that
the fair value of the reporting units in IDT Capital may be below their carrying
value. We measured the fair value of our reporting units by discounting their
estimated future cash flows using an appropriate discount rate. The carrying
value including goodwill of our IDW Publishing, CTM Media Group and WMET radio
reporting units exceeded their estimated fair value, therefore we performed
additional steps for these reporting units to determine whether an impairment of
goodwill was required. As a result of this analysis, in the second and third
quarters of fiscal 2009, we recorded aggregate preliminary goodwill impairment
of $32.7 million, which is subject to adjustment. The preliminary goodwill
impairment reduced the carrying amount of IDW Publishing, CTM Media Group and
WMET’s goodwill to zero. We recorded the preliminary amounts because it was
probable that goodwill was impaired, and the amount of impairment could be
reasonably estimated. On April 30, 2009, IDT Capital’s remaining goodwill was
$3.2 million. Calculating the fair value of the reporting units, and allocating
the estimated fair value to all of the tangible assets, intangible assets and
liabilities, requires significant estimates and assumptions. Should these
estimates or assumptions prove to be incorrect, we may record additional
goodwill impairment or adjust our preliminary impairment in future
periods.
  IDT
Spectrum, which is included in the “all other” lines of business, recorded an
impairment in the second quarter of fiscal 2009 of $5.3 million, which reduced
the carrying value of its FCC licenses to zero. The events and circumstances in
the second quarter of fiscal 2009 described above indicated that the FCC
licenses may be impaired. We estimated that these FCC licenses had nominal value
based on continuing operating losses and projected losses for the foreseeable
future.
  We
recorded an impairment of $3.5 million in the second quarter of fiscal 2009
which reduced the carrying value of IDT Global Israel’s building in Israel. We
retained exclusive control over the sale of this building after we disposed of
80% of the issued and outstanding shares of IDT Global Israel in the fourth
quarter of fiscal 2008. Once the building is sold, we will receive the net
proceeds of the sale after the repayment of the obligations secured by the
building. At April 30, 2009, the revised estimated sales price of the building
net of costs to sell of $12.7 million was included in “Other current assets” and
the mortgage balance of $6.0 million was included in “Other current
liabilities”.
  38
 Table of Contents
  As a
result of our conclusion that an interim impairment test of goodwill was
required during the second quarter of fiscal 2009, we also assessed the
recoverability of certain of our long-lived assets in accordance with SFAS
No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The assessment of
long-lived assets was based on projected undiscounted future cash flows of the
long-lived asset groups compared to their carrying values. Our cash flow
estimates were derived from our annual planning process and interim forecasting.
We believe that our procedures for projecting future cash flows are reasonable
and consistent with market conditions at the time of estimation. As a result of
our assessment under SFAS 144, as of April 30, 2009, we recorded aggregate
impairments of $2.3 million related to certain leasehold interests.
  In
February 2009, we announced that we will move our headquarters in Newark, N.J.
We are consolidating operations into considerably less office space in newly
leased headquarters, leaving our current building at 520 Broad Street in Newark
and moving a block away to 550 Broad Street. We will remain at 550 Broad Street
on an interim basis while evaluating other long term relocation options. We
leased 72,500 square feet at 550 Broad Street for one year commencing in May
2009, with options to renew the lease through May 2019. The minimum rent for the
first year is $0.9 million payable semi-annually. At April 30, 2009, the
carrying value of the land, building and improvements at 520 Broad Street was
$50.5 million and the mortgage payable balance was $26.1 million. We evaluated
the land, building and improvements for impairment 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.
  Restructuring Charges.The
restructuring charges in the three and nine months ended April 30, 2009 were nil
and $1.6 million, respectively. The restructuring charges in the three and nine
months ended April 30, 2008 were nil and $0.9 million, respectively. These
charges were primarily for severance related to the company-wide cost savings
program and reduction in force. In the nine months ended April 30, 2008, IDT
Spectrum reversed $0.4 million of restructuring charges recorded in fiscal 2006
for a contract termination.
  Gain on sale of interest in AMSO,
LLC.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 capital requirements going forward. We recognized a gain
of $2.6 million in the three months ended April 30, 2009 in connection with the
sale, which is included in Alternative Energy’s loss from
operations.
  Three months ended
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine
      months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)Loss
      from operationsLocal
      Media
                            
                            $
                            (31.7
                            )
                            
                            $
                            (1.3
                            )
                            
                            $
                            (30.4
                            )
                            
                            nm
                            
                            
                            $
                            (34.4
                            )
                            
                            $
                            (4.2
                            )
                            
                            $
                            (30.2
                            )
                            
                            
                            (718.0
                            )%Alternative
      Energy
                            
                            
                            1.8
                            
                            
                            
                            (6.2
                            )
                            
                            
                            8.0
                            
                            
                            
                            129.5
                            %
                            
                            
                            (3.0
                            )
                            
                            
                            (6.2
                            )
                            
                            
                            3.2
                            
                            
                            
                            51.6All
      other
                            
                            
                            (4.4
                            )
                            
                            
                            (10.2
                            )
                            
                            
                            5.8
                            
                            
                            
                            56.5
                            
                            
                            
                            (20.1
                            )
                            
                            
                            (35.2
                            )
                            
                            
                            15.1
                            
                            
                            
                            42.9Total
      loss from operations
                            
                            $
                            (34.3
                            )
                            
                            $
                            (17.7
                            )
                            
                            $
                            (16.6
                            )
                            
                            
                            (93.4
                            )%
                            
                            $
                            (57.5
                            )
                            
                            $
                            (45.6
                            )
                            
                            $
                            (11.9
                            )
                            
                            
                            (26.1
                            )%
 nm—not
meaningful
 
 Corporate
  In the
first quarter of fiscal 2009, certain real estate investments that were
historically included in Corporate were transferred to IDT Capital. To the
extent possible, comparative historical results for Corporate and IDT Capital
have been reclassified and restated to conform to the current business segment
presentation, 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
                              April
      30,
                            
                            
                            Change
                            
                            
                            Nine months ended
                              April
      30,
                            
                            
                            Change2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
                            
                            
                            
                            %(in
      millions)General
      and administrative expenses
                            
                            $
                            5.8
                            
                            
                            $
                            23.4
                            
                            
                            $
                            (17.6
                            )
                            
                            
                            (75.1
                            )%
                            
                            $
                            22.9
                            
                            
                            $
                            57.8
                            
                            
                            $
                            (34.9
                            )
                            
                            
                            (60.5
                            )%Depreciation
      and amortization
                            
                            
                            0.3
                            
                            
                            
                            0.4
                            
                            
                            
                            (0.1
                            )
                            
                            
                            (23.7
                            )
                            
                            
                            0.9
                            
                            
                            
                            1.3
                            
                            
                            
                            (0.4
                            )
                            
                            
                            (25.5
                            )Restructuring
      charges
                            
                            
                            0.3
                            
                            
                            
                            4.5
                            
                            
                            
                            (4.2
                            )
                            
                            
                            (94.1
                            )
                            
                            
                            2.6
                            
                            
                            
                            5.5
                            
                            
                            
                            (2.9
                            )
                            
                            
                            (52.6
                            )Loss
      from operations
                            
                            $
                            6.4
                            
                            
                            $
                            28.3
                            
                            
                            $
                            (21.9
                            )
                            
                            
                            (77.4
                            )%
                            
                            $
                            26.4
                            
                            
                            $
                            64.6
                            
                            
                            $
                            (38.2
                            )
                            
                            
                            (59.1
                            )%
 Corporate
costs include certain services, such as corporate executive 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.
  39
 Table of Contents
  General and
Administrative. Corporate
general and administrative expenses decreased in the three and nine months ended
April 30, 2009 as compared to the similar periods in fiscal 2008 primarily due
to decreases in payroll and related expenses, legal fees and charitable
contributions, as well as an accrual of $10.5 million in April 2008 related to a
jury award for an employment matter. As a percentage of our total consolidated
revenues from continuing operations, corporate general and administrative
expenses decreased from 5.3% and 4.2% in the three and nine months ended April
30, 2008, respectively, to 1.5% and 1.8% in the three and nine months ended
April 30, 2009, respectively, because corporate general and administrative
expenses decreased at a faster rate than the decrease in our consolidated
revenues.
 Restructuring
Charges. Restructuring charges in the three and nine months ended
April 30, 2009 and 2008 consisted primarily of severance related to a
company-wide cost savings program. Restructuring charges in the nine months
ended April 30, 2009 also include charges from a reduction in force in January
2009, and costs for the shutdown of certain facilities of $0.7
million.
  Liquidity
and Capital Resources
  General
  Historically,
we have satisfied our cash requirements through a combination of our existing
cash, cash equivalents, cash flow from operating activities, proceeds from the
sales and maturities of marketable securities and investments, arbitration
awards and litigation settlements, sales of our equity securities including the
exercise of stock options and sales under our employee stock purchase plan,
borrowings from third parties, and the sales of businesses (e.g. Corbina
Telecom, IDT Entertainment, our U.K.-based Toucan business and IDT Carmel’s debt
portfolios).
  As of
April 30, 2009, we had cash, cash equivalents, restricted cash and cash
equivalents, marketable securities and investments of $217.3 million and working
capital (current assets less current liabilities) of $50.4 million. In
addition, as of April 30, 2009, our assets of discontinued operations included
cash and cash equivalents of $0.2 million. As of April 30, 2009, investments
included $12.3 million in holdings of pooled investment vehicles, including
hedge funds, of which $4.4 million is included in “Investments-short term” and
$7.9 million is included in “Investments-long-term” in our consolidated balance
sheet.
  As of
April 30, 2009, cash and cash equivalents of $58.7 million that serve as
collateral were restricted against letters of credit, and were included in
“Restricted cash and cash equivalents” in our consolidated balance sheet. Also,
as of April 30, 2009, marketable securities of $5.2 million were restricted
primarily against letters of credit and were included in “Marketable securities”
in our consolidated balance sheet. The letters of credit outstanding at April
30, 2009 were primarily collateral for IDT Energy’s purchases of natural gas
through wholesale bilateral contracts with suppliers and various utility
companies and electric capacity, energy and ancillary services through the
wholesale markets, as well as to secure mortgage repayments on various
buildings.
  As of
April 30, 2009, “Cash and cash equivalents” in our condensed consolidated
balance sheet included approximately $10 million that was held pursuant to
regulatory requirements related to our European prepaid payment services
business.
  Our
marketable securities at April 30, 2009 included auction rate securities with a
par value of $14.3 million. The underlying asset for these securities is
preferred stock of the Federal National Mortgage Association (Fannie Mae) or the
Federal Home Loan Mortgage Corporation (Freddie Mac). 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. At
July 31, 2008, we determined that there was an other than temporary decline
in the value of these auction rate securities, and accordingly, recorded a $7.2
million expense and reduced the auction rate securities balance to an estimated
fair value of $7.1 million. On September 7, 2008, the Federal Housing
Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship
administered by the FHFA. One result of the conservatorship and related actions
of the FHFA was a significant decline in the market value of Fannie Mae and
Freddie Mac’s preferred stock. In the nine months ended April 30, 2009, we
determined that there was an additional other than temporary decline in the
value of these auction rate securities, and accordingly, recorded a $6.8 million
charge that was included in “Other expense (income), net” in our condensed
consolidated statement of operations and reduced the auction rate securities
balance to an estimated fair value of $0.3 million.
  On
September 30, 2008 and October 8, 2008, we received notices from the
New York Stock Exchange (NYSE) that we were no longer in compliance with the
NYSE’s $100 million market capitalization threshold and the $1.00 average
closing price over a consecutive 30-day trading period requirement,
respectively, required for continued listing. We submitted a plan to the NYSE to
regain compliance, and that plan was accepted. The NYSE monitors compliance with
the plan and may commence delisting procedures prior to either deadline if we
fail to meet the milestones set forth in our plan. We have until March 2010 to
regain compliance with the $100 million market capitalization standard. In
addition, according to the rules of the NYSE, the NYSE will promptly initiate
suspension and delisting procedures with respect to a listed company that is
determined to have average global market capitalization over a consecutive 30
trading-day period of less than $25 million. The NYSE has reduced this $25
million threshold to $15 million until June 30, 2009. We are currently in
compliance with this reduced threshold. On April 8, 2009, the NYSE notified us
that the stock price for each of our listed equity securities was above the
NYSE’s minimum requirement of a $1.00 average share price over the preceding 30
trading days and a $1.00 share price on the close of the last trading day of the
six-month cure period (April 8, 2009), thus restoring our compliance with the
minimum share price requirement for continued listing on the NYSE.
  40
 Table of Contents
  Nine months ended
                                April
      30,2009
                              
                              
                              2008(in
      millions)Cash
      flows (used in) provided byOperating
      activities
                              
                              $
                              (96.7
                              )
                              
                              $
                              (115.3
                              )Investing
      activities
                              
                              
                              51.2
                              
                              
                              
                              202.1Financing
      activities
                              
                              
                              (15.2
                              )
                              
                              
                              (74.0
                              )Effect
      of exchange rate changes on cash and cash equivalents
                              
                              
                              (4.7
                              )
                              
                              
                              3.9(Decrease)
      increase in cash and cash equivalents from continuing
      operations
                              
                              
                              (65.4
                              )
                              
                              
                              16.7Net
      cash provided by (used in) discontinued operations
                              
                              
                              26.8
                              
                              
                              
                              (40.9
                              )Decrease
      in cash and cash equivalents
                              
                              $
                              (38.6
                              )
                              
                              $
                              (24.2
                              )
 
 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
April 30, 2009, our company-wide cost savings program to better align our
infrastructure to our current business needs, and our plan to effect a reduction
in force have resulted in the termination of approximately 1,420 employees since
the third quarter of fiscal 2006. Severance and other payments related to these
cost savings programs were $19.1 million and $23.6 million in the nine months
ended April 30, 2009 and 2008, respectively. As of April 30, 2009, $7.8 million
remained accrued for the ultimate payment of severance and other costs related
to these cost savings initiatives.
  As a
result of an IRS audit of our federal tax returns for fiscal years 2001, 2002,
2003 and 2004, we owed approximately $75 million in taxes for fiscal 2001,
approximately $1 million for adjustments carried forward to fiscal 2005 and 2006
and $39.5 million in interest. In connection therewith, we paid $80.0 million of
the amount owed between July 2008 and January 2009. On January 27, 2009, we
entered into a modified installment agreement with the IRS, whereby we agreed to
pay the remaining amounts owed to the IRS for fiscal years 2001 – 2004 by June
2009. During the third quarter of fiscal 2009, we paid $25.0 million
to the IRS on our outstanding balance. By June 15, 2009, we will have
paid an additional $13.4 million to fully satisfy our obligation under the
modified agreement. The final payment may be reduced if the IRS waives the
penalties. In December 2008, the IRS commenced an audit of our federal tax
returns for fiscal years 2005, 2006 and 2007. In May 2009, the IRS assessed
a liability of $1.2 million for fiscal year 2005 which represents the
approximately $1 million previously agreed to plus interest. In addition, an
audit in the Netherlands of one of our subsidiaries was completed in October
2008 that resulted in a settlement of $4.4 million including interest, which was
paid in December 2008.
  On
July 10, 2008, the FCC released a Notice of Apparent Liability (“NAL”) of
$1.3 million related to one of our international telecommunications service
agreements. The NAL claims that we violated section 220 of the Telecom Act, and
section 43.51 of the FCC’s rules by willfully and repeatedly failing to file
with the FCC, within thirty days of execution, a copy of an agreement with
Telecommunications D’Haiti S.A.M. and each of four amendments thereto governing,
among other things, the exchange of services, routing of traffic, accounting
rates, and division of tolls on the U.S.-Haiti route. On October 29, 2008,
the FCC released an order adopting an October 29, 2008 Consent Decree
entered into between us and the FCC’s Enforcement Bureau resolving the
matter. As part of the Consent Decree, in November 2008 we made a voluntary
contribution to the United States Treasury in the amount of $0.4 million and
will further develop our FCC compliance plan.
  We are
currently subject to audits by different European taxing authorities, including
audits relating to VAT that we have not collected for calling cards sold to
distributors who, in turn, resell such cards in various jurisdictions in Europe.
On September 4, 2008, a Swedish court granted an application made by the
Swedish Tax Agency to seize SEK 100 million ($12.1 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 ($14.4 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. We intend to
appeal the re-assessment and request a suspension of the payment obligation
until the matter is addressed by the appropriate court. As we intend to
challenge the re-assessment, we cannot be certain of the ultimate outcome.
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.
  41
 Table of Contents
  Investing
Activities
  In the
nine months ended April 30, 2009 and 2008, proceeds from sales and maturities of
marketable securities net of purchases of marketable securities were $89.3
million and $231.2 million, respectively.
  Our
capital expenditures were $10.7 million in the nine months ended April 30, 2009
compared to $13.9 million in the nine months ended April 30, 2008. We
currently anticipate that total capital expenditures for all of our divisions
for the year ending April 30, 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.
  We
purchased our headquarters office building in February 2008 for $24.8 million in
cash plus the assumption of the remainder of the existing mortgage on the
building in the amount of $26.9 million. In addition, an affiliate of the seller
repaid its $16.9 million note payable to us that was secured by an interest in
the building.
  In the
nine months ended April 30, 2009 and 2008, cash used for investments and
acquisitions was $2.5 million and $21.7 million, respectively. In fiscal 2009,
$1.0 million was used for a short-term certificate of deposit, $0.6 million was
used to acquire rights to use certain intangible assets and $0.9 million was
used for a capital contribution to AMSO, LLC. The fiscal 2008 amount included
cash used for our investment in AMSO LLC of $5.5 million and additional
investments in pooled investment vehicles including hedge funds of $15.9
million. We received $26.4 million in the nine months ended April 30, 2009 from
the redemption of certain of our investments in pooled investment vehicles. We
sold certain of our investments in the nine months ended April 30, 2008 for
$10.9 million and recorded an aggregate gain of $3.0 million from the
sales.
  Restricted
cash and cash equivalents increased $54.5 million in the nine months ended April
30, 2009, as a result of our shifting balances from restricted marketable
securities to restricted cash and cash equivalents, and decreased $0.8 million
in the nine months ended April 30, 2008. Restricted cash, cash equivalents and
marketable securities serve as collateral for letters of credit for IDT Energy’s
purchases of natural gas and electric capacity, energy and ancillary services,
as well as to secure mortgage repayments on various
buildings.
  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
capital requirements going forward.
  We sold a
building in Newark, New Jersey in the nine months ended April 30, 2008 and
received cash of $4.9 million from the sale. We recorded a $4.1 million gain on
the sale of the building in the nine months ended April 30, 2008.
  Financing
Activities
  We
distributed cash of $2.3 million and $3.9 million in the nine months ended April
30, 2009 and 2008, respectively, to the minority equity holders of
subsidiaries.
  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. In the nine months ended April 30, 2009, we sold
a 10% minority interest in Israel Energy Initiatives, Ltd., our alternative
energy company in Israel, for cash of $0.2 million.
  In the
nine months ended April 30, 2008, we received proceeds of $0.1 million from the
exercise of our stock options, and $0.8 million from purchases under our
employee stock purchase plan.
  Repayments
of capital lease obligations were $6.0 million and $22.7 million in the nine
months ended April 30, 2009 and 2008, respectively. We also repaid other
borrowings of $1.6 million and $3.0 million in the nine months ended April 30,
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 nine months ended April 30, 2009, we repurchased
an aggregate of 2.4 million shares of Class B common stock and
1.4 million shares of common stock for an aggregate purchase price of $6.5
million. In the nine months ended April 30, 2008, we repurchased an aggregate of
1.8 million shares of Class B common stock and 0.2 million shares of
common stock for an aggregate purchase price of $44.5 million. As of April 30,
2009, 7.0 million shares remained available for repurchase under the stock
repurchase program.
  42
 Table of Contents
  In the
nine months ended April 30, 2008, we acquired an aggregate of
0.1 million shares of our Class B common stock held by certain of our
employees for $0.8 million to satisfy the employees’ tax withholding obligations
in connection with the lapsing of restrictions on restricted stock
awards.
  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 $158.7 million at April 30, 2009 from
$200.2 million at July 31, 2008 mostly due to collections of accounts
receivable and reductions in revenues. The allowance for doubtful accounts as a
percentage of gross trade accounts receivable increased to 13.0% at April 30,
2009 from 10.8% at July 31, 2008 mainly because the allowance balance
decreased 4.4% while the gross trade accounts receivable balance decreased
20.7%.
  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). We continually
evaluate our portfolio for opportunities to monetize select businesses where we
deem appropriate.
  We
incurred a loss from continuing operations in each of the five years in the
period ended July 31, 2008 and in the nine months ended April 30, 2009. We
incurred a net loss in the nine months ended April 30, 2009, and in fiscal 2008,
fiscal 2006, fiscal 2005 and fiscal 2004, 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, 2008 and in the nine months ended April 30, 2009. We
had an accumulated deficit at April 30, 2009 of $259.1 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 April 30, 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 on 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 its business plan.
  If our
results differ from our current expectations, or if we acquire the business or
assets of another company, we might need to raise additional capital from equity
or debt sources. We have been discussing with several financial institutions
additional sources of financing to supplement our existing capital resources.
There can be no assurance that we will be able to raise additional capital on
favorable terms or at all.
  Foreign
Currency Risk
  Revenues
from our international operations represented 34.7% and 33.6% of our
consolidated revenues from continuing operations for the nine months ended April
30, 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.
  43
 Table of Contents
  Recently
Issued Accounting Standards Not Yet Adopted
  In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. SFAS
141(R) establishes principles and requirements for how the acquirer:
(a) recognizes and measures the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree,
(b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS
141(R) requires the acquiring entity in a business combination to recognize
the full fair value of the assets acquired and liabilities assumed in the
transaction at the acquisition date; in-process research and development will be
recorded at fair value as an indefinite-lived intangible asset at the
acquisition date; the immediate expense recognition of transaction costs;
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax expense; and
restructuring plans will be accounted for separately from the business
combination, among other things. In April 2009, the FASB issued FASB Staff
Position (FSP) 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, which amends and clarifies SFAS 141(R) with regards
to the initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. We are required to apply SFAS 141(R) and FSP
141(R)-1 to business combinations with an acquisition date on or after
August 1, 2009. SFAS 141(R) fundamentally changes many aspects of
existing accounting requirements for business combinations. As such, if we enter
into any business combinations after the adoption of SFAS 141(R), a transaction
may significantly impact our financial position and results of operations, but
not our cash flows, when compared to acquisitions accounted for under current US
GAAP.
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS
160 clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. Also, SFAS 160 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,
SFAS 160 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. We are required to adopt SFAS 160 on August 1, 2009.
Upon the adoption of SFAS 160, we will change the classification and
presentation of noncontrolling interest in our financial statements, which is
currently referred to as minority interests. We are still evaluating the impact
that SFAS 160 will have on our consolidated financial statements, but we do not
expect SFAS 160 to have a material impact on our financial position, results of
operations or cash flows.
  In April
2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets. We are required to adopt FSP 142-3 on August 1, 2009. The
guidance in FSP 142-3 for determining the useful life of a recognized intangible
asset shall be applied prospectively to intangible assets acquired after
adoption, and the disclosure requirements shall be applied prospectively to all
intangible assets recognized as of, and subsequent to, adoption. We are
currently evaluating the impact of FSP 142-3 on our consolidated financial
statements.
  In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the guidance in US GAAP
for assessing whether an impairment of a debt security is other than temporary,
and revises the presentation and disclosure in the financial statements of other
than temporary impairments of debt and equity securities. We were required to
adopt FSP 115-2 on May 1, 2009. In addition, in April 2009, the SEC amended
Topic 5.M. in the Staff Accounting Bulletin Series entitled Other Than Temporary Impairment of
Certain Investments in Debt and Equity Securities to exclude debt
securities from its scope. Topic 5.M. as amended maintains the staff’s previous
views related to equity securities. We are currently evaluating the impact of
FSP 115-2 on our consolidated financial statements. We do not expect the
amendment to Topic 5.M. to have a material impact on our financial position,
results of operations or cash flows.
  In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which amends SFAS 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. The FSP 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. FSP 107-1 became
effective for our financial statements beginning on May 1, 2009. We will include
the disclosures required by FSP 107-1 in our consolidated financial statements
for our first quarter ending October 31, 2009.
  44
 Table of Contents
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events,to
establish principles and requirements for subsequent events, in particular: (a)
the period after the balance sheet date during which management of a reporting
entity shall evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (b) the circumstances
under which an entity shall recognize events or transactions occurring after the
balance sheet date in its financial statements, and (c) the disclosures that an
entity shall make about events or transactions that occurred after the balance
sheet date. SFAS 165 is effective prospectively for interim or annual financial
periods ending after June 15, 2009. SFAS 165 should not result in significant
changes in the subsequent events that we report in our financial statements,
because it does not change the previous recognition and disclosure guidance in
the accounting literature and it does not change the date through which we were
expected to evaluate subsequent events. This statement requires management to
disclose the date through which subsequent events have been evaluated, which we
will begin to disclose in our Annual Report on Form 10-K for the year ending
July 31, 2009.
  Item 3.         Quantitative
and Qualitative Disclosures About Market Risks
  Smaller
reporting companies are not required to provide the information required by this
item.
  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 this evaluation, as a
result of the material weakness described in Item 9A to Part II of our
Annual Report on Form 10-K for the year ended July 31, 2008 that has not
been remediated as of April 30, 2009, our Chief Executive Officer and Chief
Financial Officer have concluded as of April 30, 2009, that our disclosure
controls and procedures were ineffective and were not designed to ensure that
material information relating to our and our consolidated subsidiaries would be
accumulated and communicated to them by others within those entities to allow
timely decisions regarding required disclosure.
  As
described in Item 9A to Part II of our Annual Report on Form 10-K for the
year ended July 31, 2008, during the audit of our financial statements as
of July 31, 2008 and for the year then ended, a material weakness existed
relating to our lack of internal expertise and resulting failure to properly
execute control procedures designed to prepare and evaluate the annual testing
for impairment of goodwill and other intangible assets not subject to
amortization as required by SFAS No. 142, “Goodwill and Other Intangible
Assets.”This material weakness resulted in a material audit adjustment
for an impairment charge with respect to goodwill. Consequently, our
consolidated financial statements as of July 31, 2008 and for the year then
ended properly reflected the results of the goodwill impairment
testing.
  To
remediate this material weakness, we will perform a more rigorous fact gathering
process and consideration of the relevant valuation assumptions in our Step 1
analysis under SFAS 142. In addition, in May 2009, certain of our personnel
received training on valuation techniques to improve our internal expertise. We
will also enhance and expand our review procedures to include additional
personnel who will be involved in a timelier manner. We believe these measures
should be adequate to address the material weakness that existed at
July 31, 2008 related to the annual testing for impairment required by SFAS
142. Our remediation effort is currently on schedule to be completed when our
next annual testing for impairment required by SFAS 142 will be performed.
Regarding our interim test for impairment conducted for our fiscal quarter ended
April 30, 2009, we engaged a valuation consulting firm to assist us with our
analysis since our remediation effort was not complete. We will continue to
evaluate and monitor our efforts to remediate the material weakness and will
take all appropriate action when and as necessary to ensure we have effective
internal controls over financial reporting.
  Changes in Internal Control over
Financial Reporting. There were no changes in our internal control
over financial reporting during the quarter ended April 30, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
  45
 Table of Contents
  PART II. OTHER INFORMATION
  Item 1.         Legal
Proceedings
  Legal
proceedings in which we are involved are more fully described in Note 13 to the
Condensed Consolidated Financial Statements included in Item 1 to Part I of
this Quarterly Report on Form 10-Q.
  We are
subject to other legal proceedings, which have arisen in the ordinary course of
business and have not been finally adjudicated. Although there can be no
assurances in this regard, in the opinion of management, none of the legal
proceedings to which we are a party will have a material adverse effect on our
results of operations, cash flows, or our financial condition.
  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 third quarter of fiscal 2009. All share and average price
per share amounts in the following table have been restated to reflect the
one-for-three reverse stock split which was effective on February 24,
2009.
  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)February 1–28,
      2009 (2)
                            
                            
                            885,118
                            
                            
                            $
                            1.03
                            
                            
                            
                            885,052
                            
                            
                            
                            7,448,281March 1–31,
      2009 (3)
                            
                            
                            217,760
                            
                            
                            $
                            1.08
                            
                            
                            
                            217,760
                            
                            
                            
                            7,230,521April 1–30,
      2009 (4)
                            
                            
                            278,315
                            
                            
                            $
                            1.17
                            
                            
                            
                            277,538
                            
                            
                            
                            6,952,983Total
                            
                            
                            1,381,193
                            
                            
                            $
                            1.06
                            
                            
                            
                            1,380,350
 
 (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 383,509 shares of common stock and 501,543 shares of Class B common
      stock purchased pursuant to the stock repurchase program, resulting in an
      aggregate of 7,448,281 shares that may yet be purchased under the stock
      repurchase program, and 66 shares of Class B common stock that were
      tendered by employees of the Company to satisfy the employees’ tax
      withholding obligations in connection with the vesting of awards of
      restricted stock. Such shares are repurchased by the Company based on
      their fair market value on the trading day immediately prior to the
      vesting date.
 (3)
              Consists
      of 21,500 shares of common stock and 196,260 shares of Class B common
      stock purchased pursuant to the stock repurchase program, resulting in an
      aggregate of 7,230,521 shares that may yet be purchased under the stock
      repurchase program.
 (4)
              Consists
      of 277,538 shares of Class B common stock purchased pursuant to the stock
      repurchase program, resulting in an aggregate of 6,952,983 shares that may
      yet be purchased under the stock repurchase program, and 777 shares of
      Class B common stock that were tendered by employees of the Company to
      satisfy the employees’ tax withholding obligations in connection with the
      vesting of awards of restricted stock. Such shares are repurchased by the
      Company based on their fair market value on the trading day immediately
      prior to the vesting date.
 
 Item
3.         Defaults Upon Senior
Securities
  None
  Item 4.         Submission
of Matters to a Vote of Security Holders
  None
  46
 Table of Contents
  Item 5.         Other
Information
  None
  Item 6.         Exhibits
  Exhibit
                      Number
                    
                    Description2.1
                    
                    Purchase
      and Sale Contract among the Registrant, IDT Carmel, Inc., IDT Carmel
      Portfolio Management LLC, and FFPM Carmel Holdings I LLC, and its
      predecessors and Sherman Originator III LLC dated January 30, 2009.Incorporated by
      reference to Form 8-K, filed February 5, 2009.10.1
                    
                    Employment
      Agreement, dated April 29, 2009, between the Registrant and Bill Pereira.
      Incorporated by reference to Form 8-K, filed May 1,
    2009.31.1*
                    
                    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.
   47
 Table of Contents
 
 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
      CORPORATIONJune
      9, 2009
                  
                  By:
                  /s/    JAMES A. COURTERJames
      A. Courter
                    Vice-Chairman
      and Chief Executive OfficerJune
      9, 2009
                  
                  By:
                  /s/    BILL PEREIRABill
      Pereira
                    Chief
      Financial Officer and
Treasurer
 
 
   48