10-Q 1 f10q0410_idt.htm QUARTERLY REPORT f10q0410_idt.htm


 
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, 2010
 
or
 
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 1-16371


 
IDT CORPORATION
(Exact Name of Registrant as Specified in its Charter)


 
Delaware
 
22-3415036
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
     
520 Broad Street, Newark, New Jersey
 
07102
(Address of principal executive offices)
 
(Zip Code)
 
(973) 438-1000
(Registrant’s telephone number, including area code)
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
       
Large accelerated filer
¨
Accelerated filer
¨
       
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x
 
As of June 10, 2010, the registrant had the following shares outstanding:
 
   
Common Stock, $.01 par value:
3,728,654 shares outstanding (excluding 5,512,841 treasury shares)
Class A common stock, $.01 par value:
3,272,326 shares outstanding
Class B common stock, $.01 par value:
15,619,999 shares outstanding (excluding 7,586,607 treasury shares)

 
 
 

 
 
 
IDT CORPORATION
 
TABLE OF CONTENTS
 
PART I.  FINANCIAL INFORMATION
3
     
Item 1.
Financial Statements (Unaudited)
3
     
 
Condensed Consolidated Balance Sheets
3
     
 
Condensed Consolidated Statements of Operations
4
     
 
Condensed Consolidated Statements of Cash Flows
5
     
 
Notes to Condensed Consolidated Financial Statements
6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
47
     
Item 4T.
Controls and Procedures
47
   
PART II.  OTHER INFORMATION
48
     
Item 1.
Legal Proceedings
48
     
Item 1A.
Risk Factors
48
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
48
     
Item 3.
Defaults Upon Senior Securities
48
     
Item 4.
Reserved
48
     
Item 5.
Other Information
48
     
Item 6.
Exhibits
49
   
SIGNATURES
50
 
 
 
2

 
 
PART I. FINANCIAL INFORMATION
 
Item 1.      Financial Statements (Unaudited)
 
IDT CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
April 30,
2010
   
July 31,
2009
 
   
(Unaudited)
   
(Note 1)
 
   
(in thousands)
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 215,471     $ 117,902  
Restricted cash and cash equivalents (Note 14)
    13,776       64,992  
Marketable securities (Note 14)
    587       5,702  
Trade accounts receivable, net of allowance for doubtful accounts of $14,851 at April 30, 2010 and $15,740 at July 31, 2009
    106,037       138,697  
Prepaid expenses
    14,509       17,597  
Investments—short-term
    1,804       631  
Other current assets
    16,065       17,394  
Assets of discontinued operations
          18,790  
                 
Total current assets
    368,249       381,705  
Property, plant and equipment, net
    103,724       129,066  
Goodwill
    18,668       17,275  
Licenses and other intangibles, net
    4,073       5,350  
Investments—long-term
    7,879       13,099  
Other assets
    10,900       13,125  
                 
Total assets
  $ 513,493     $ 559,620  
                 
Liabilities and equity
               
Current liabilities:
               
Trade accounts payable
  $ 48,908     $ 68,120  
Accrued expenses
    147,143       159,032  
Deferred revenue
    71,934       67,505  
Income taxes payable
    2,431       2,031  
Capital lease obligations—current portion
    7,144       7,058  
Notes payable—current portion
    592       820  
Other current liabilities
    2,022       4,852  
Liabilities of discontinued operations
          5,496  
                 
Total current liabilities
    280,174       314,914  
Capital lease obligations—long-term portion
    730       5,211  
Notes payable—long-term portion
    36,394       43,281  
Other liabilities
    16,040       16,772  
                 
Total liabilities
    333,338       380,178  
Commitments and contingencies
               
Equity:
               
IDT Corporation stockholders’ equity:
               
Preferred stock, $.01 par value; authorized shares—10,000; no shares issued
           
Common stock, $.01 par value; authorized shares—100,000; 9,241 and 9,241 shares issued and 3,728 and 4,202 shares outstanding at April 30, 2010 and July 31, 2009, respectively
    92       92  
Class A common stock, $.01 par value; authorized shares—35,000; 3,272 shares issued and outstanding at April 30, 2010 and July 31, 2009
    33       33  
Class B common stock, $.01 par value; authorized shares—200,000; 23,207 and 22,913 shares issued and 15,620 and 15,503 shares outstanding at April 30, 2010 and July 31, 2009, respectively
    232       229  
Additional paid-in capital
    712,732       720,804  
Treasury stock, at cost, consisting of 5,513 and 5,039 shares of common stock and 7,587 and 7,410 shares of Class B common stock at April 30, 2010 and July 31, 2009, respectively
    (295,696 )     (293,901 )
Accumulated other comprehensive income
    554       953  
Accumulated deficit
    (239,081 )     (251,916 )
                 
Total IDT Corporation stockholders’ equity
    178,866       176,294  
Noncontrolling interests
    1,289       3,148  
                 
Total equity
    180,155       179,442  
                 
Total liabilities and equity
  $ 513,493     $ 559,620  
 
See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
IDT CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands, except per share data)
 
Revenues
  $ 355,423     $ 356,892     $ 1,045,424     $ 1,164,625  
Costs and expenses:
                               
Direct cost of revenues (exclusive of depreciation and amortization)
    281,242       272,179       827,901       895,135  
Selling, general and administrative
    52,625       67,354       164,391       219,240  
Depreciation and amortization
    7,614       10,915       25,440       35,934  
Bad debt
    1,194       2,438       2,104       6,191  
Research and development
    2,269       1,548       5,761       7,932  
Impairments
    5       29,344       (101 )     38,144  
Restructuring charges
    2,883       536       4,552       7,720  
                                 
Total costs and expenses
    347,832       384,314       1,030,048       1,210,296  
Gains on settlements, net
    8,985             8,985        
Gain on sale of interest in AMSO, LLC
          2,606             2,606  
                                 
Income (loss) from operations
    16,576       (24,816 )     24,361       (43,065 )
Interest expense, net
    (1,559 )     (847 )     (4,848 )     (1,022 )
Other income (expense), net
    978       1,153       (103 )     (30,588 )
                                 
Income (loss) from continuing operations before income taxes
    15,995       (24,510 )     19,410       (74,675 )
Provision for income taxes
    (3,465 )     (1,706 )     (6,257 )     (10,707 )
                                 
Income (loss) from continuing operations
    12,530       (26,216 )     13,153       (85,382 )
Discontinued operations, net of tax:
                               
Loss from discontinued operations
          (36,398 )     (170 )     (77,162 )
Loss on sale of discontinued operations
    (39 )           (230 )     (231 )
                                 
Total discontinued operations
    (39 )     (36,398 )     (400 )     (77,393 )
                                 
Net income (loss)
    12,491       (62,614 )     12,753       (162,775 )
Net (income) loss attributable to noncontrolling interests
    116       (822 )     82       95  
                                 
Net income (loss) attributable to IDT Corporation
  $ 12,607     $ (63,436 )   $ 12,835     $ (162,680 )
                                 
                                 
Amounts attributable to IDT Corporation common stockholders:
                               
Income (loss) from continuing operations
  $ 12,646     $ (27,038 )   $ 13,134     $ (86,154 )
Loss from discontinued operations
    (39 )     (36,398 )     (299 )     (76,526 )
                                 
Net income (loss)
  $ 12,607     $ (63,436 )   $ 12,835     $ (162,680 )
                                 
                                 
Earnings per share attributable to IDT Corporation common stockholders:
                               
Basic:
                               
Income (loss) from continuing operations
  $ 0.61     $ (1.23 )   $ 0.64     $ (3.73 )
Loss from discontinued operations
          (1.65 )     (0.01 )     (3.32 )
                                 
Net income (loss)
  $ 0.61     $ (2.88 )   $ 0.63     $ (7.05 )
                                 
Weighted-average number of shares used in calculation of basic earnings per share
    20,523       22,052       20,425       23,081  
                                 
                                 
Diluted:
                               
Income (loss) from continuing operations
  $ 0.58     $ (1.23 )   $ 0.61     $ (3.73 )
Loss from discontinued operations
          (1.65 )     (0.01 )     (3.32 )
                                 
Net income (loss)
  $ 0.58     $ (2.88 )   $ 0.60     $ (7.05 )
                                 
Weighted-average number of shares used in calculation of diluted earnings per share
    21,878       22,052       21,310       23,081  
                                 
 
See accompanying notes to condensed consolidated financial statements. 
 
 
 
4

 
 
 
IDT CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Nine Months Ended
April 30,
 
   
2010
   
2009
 
   
(in thousands)
 
Net cash provided by (used in) operating activities
  $ 47,467     $ (98,317 )
Investing activities
               
Capital expenditures
    (6,593 )     (10,249 )
Repayment of notes receivable, net
    71       168  
Capital contributions to AMSO, LLC
    (744 )     (904 )
Acquisition of intangible asset
          (600 )
Proceeds from sale and redemption of investments
    2,349       26,351  
Restricted cash and cash equivalents
    51,216       (54,538 )
Proceeds from sales of buildings
    5,150        
Proceeds from insurance
    250        
Proceeds from sale of interest in AMSO, LLC
          3,198  
Proceeds from sales and maturities of marketable securities
    4,618       145,316  
Purchases of marketable securities
          (56,035 )
                 
Net cash provided by investing activities
    56,317       52,707  
Financing activities
               
Cash of subsidiaries deconsolidated as a result of the CTM Spin-Off
    (9,775 )      
Distributions to holders of noncontrolling interests in subsidiaries
    (1,499 )     (1,945 )
Proceeds from sales of stock of subsidiaries
    5,690       1,187  
Proceeds from employee stock purchase plan
          36  
Repayments of capital lease obligations
    (4,519 )     (5,856 )
Repayments of borrowings
    (475 )     (780 )
Repurchases of common stock and Class B common stock
    (1,795 )     (6,568 )
                 
Net cash used in financing activities
    (12,373 )     (13,926 )
Discontinued operations
               
Net cash provided by (used in) operating activities
    930       (1,220 )
Net cash (used in) provided by investing activities
    (44 )     28,233  
Net cash used in financing activities
    (471 )     (1,316 )
                 
Net cash provided by discontinued operations
    415       25,697  
Effect of exchange rate changes on cash and cash equivalents
    (737 )     (4,728 )
                 
Net increase (decrease) in cash and cash equivalents
    91,089       (38,567 )
Cash and cash equivalents (including discontinued operations) at beginning of period
    124,382       164,886  
                 
Cash and cash equivalents (including discontinued operations) at end of period
    215,471       126,319  
Less cash and cash equivalents of discontinued operations at end of period
          (6,001 )
                 
Cash and cash equivalents (excluding discontinued operations) at end of period
  $ 215,471     $ 120,318  
                 
Supplemental schedule of non-cash financing and investing activities
               
Mortgage note payable settled in connection with the sale of building
  $ (6,137 )   $  
                 
Net assets excluding cash and cash equivalents of subsidiaries deconsolidated as a result of the CTM Spin-Off
  $ (6,011 )   $  
 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
IDT CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1—Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of IDT Corporation and its subsidiaries (the “Company” or “IDT”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2010. The balance sheet at July 31, 2009 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
 
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2010 refers to the fiscal year ending July 31, 2010).
 
On August 1, 2009, the Company adopted the accounting standard relating to noncontrolling interests in consolidated financial statements (see Note 15). In addition, certain prior year amounts have been reclassified to conform to the current year’s presentation. As described in Note 2, certain subsidiaries have been reclassified to discontinued operations for all periods presented, and a subsidiary has been reclassified from discontinued operations to continuing operations for all periods presented. As described in Note 12, business segment results for the three and nine months ended April 30, 2009 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 $0.5 million and $1.7 million in the three and nine months ended April 30, 2010, respectively, and $0.6 million and $2.1 million in the three and nine months ended April 30, 2009, respectively, were recorded on a gross basis.
 
On April 1, 2010, the Company received notification from the New York Stock Exchange (“NYSE”) that it had regained full compliance with the NYSE’s quantitative continued listing standards by achieving market capitalization of $140.9 million on March 30, 2010 and 30 trading day trailing average market capitalization through and including March 30, 2010 of $120.8 million.
 
Note 2—Discontinued Operations
 
CTM Media Holdings, Inc.
 
On September 14, 2009, the Company completed a pro rata distribution of the common stock of CTM Media Holdings, Inc. (“CTM Holdings”) to the Company’s stockholders of record as of the close of business on August 3, 2009 (the “CTM Spin-Off”). CTM Holdings’ businesses at the time of the CTM Spin-Off included CTM Media Group, IDW Publishing and WMET 1160AM. CTM Holdings and subsidiaries met the criteria to be reported as discontinued operations and accordingly, their assets, liabilities, results of operations and cash flows are classified as discontinued operations for all periods presented. As of September 14, 2009, each of the Company’s stockholders of record as of the close of business on the record date received: (i) one share of CTM Holdings Class A common stock for every three shares of the Company’s common stock; (ii) one share of CTM Holdings Class B common stock for every three shares of the Company’s Class B common stock; (iii) one share of CTM Holdings Class C common stock for every three shares of the Company’s Class A common stock; and (iv) cash in lieu of a fractional share of all classes of CTM Holdings’ common stock.
 
In September 2009, prior to the CTM Spin-Off, the Company funded CTM Holdings with an additional $2.0 million in cash.
 
Prior to the CTM Spin-Off, the Company provided certain services to CTM Holdings’ subsidiaries. The Company and CTM Holdings entered into a Master Services Agreement, dated September 14, 2009, pursuant to which, among other things, the Company provides certain administrative and other services to CTM Holdings on an interim basis. Such services include assistance with periodic reports required to be filed with the SEC as well as maintaining minutes, books and records of meetings of the Board of Directors and its committees, and assistance with corporate governance. In the three and nine months ended April 30, 2010, the Company’s selling, general and administrative expenses were reduced by $0.2 million and $0.8 million, respectively, for the amounts charged to CTM Holdings. At April 30, 2010, other current assets included $0.1 million due from CTM Holdings.
 
 
 
6

 
 
The Company and CTM Holdings entered into a Tax Separation Agreement, dated as of September 14, 2009, to provide for certain tax matters including the assignment of responsibility for the preparation and filing of tax returns, the payment of and indemnification for taxes, entitlement to tax refunds and the prosecution and defense of any tax controversies. Pursuant to this agreement, the Company indemnifies CTM Holdings from all liability for taxes of CTM Holdings and its subsidiaries for periods ending on or before September 14, 2009, and CTM Holdings indemnifies the Company from all liability for taxes of CTM Holdings and its subsidiaries accruing after September 14, 2009. Also, for periods ending on or before September 14, 2009, the Company shall have the right to control the conduct of any audit, examination or other proceeding brought by a taxing authority. CTM Holdings shall have the right to participate jointly in any proceeding that may affect its tax liability unless the Company has indemnified CTM Holdings. Finally, CTM Holdings and its subsidiaries agreed not to carry back any net operating losses, capital losses or credits for any taxable period ending after September 14, 2009 to a taxable period ending on or before September 14, 2009 unless required by applicable law, in which case any refund of taxes attributable to such carry back shall be for the account of the Company.
 
Hillview Avenue Realty, LLC
 
On July 31, 2009, Hillview Avenue Realty, LLC (“Hillview”), a majority owned subsidiary of the Company, closed on the sale of its property located at 3373 and 3375 Hillview Avenue in Palo Alto, California. The Company has a 69.27% ownership interest in Hillview. The property consisted of two interconnected office buildings located on 6.68 acres. The sales price was $62.7 million. The Company’s proceeds from the sale, after deduction of the mortgage debt secured by the property that was assumed by the buyer or repaid in connection with the sale, and transaction expenses were $4.4 million, which was received in August 2009. In November 2009, the Company paid $1.5 million of the proceeds to the minority owners of Hillview. This sale met the criteria to be reported as discontinued operations and accordingly, the assets, liabilities, results of operations and cash flows of the property are classified as discontinued operations for all periods presented.
 
Union Telecard Dominicana, S.A and Ethnic Grocery Brands LLC

On June 24, 2009, the Company acquired the 49% interest in Union Telecard Alliance, LLC (“UTA”) that it did not own in exchange for (a) $4.9 million in cash, (b) a promissory note in the principal amount of $1.2 million payable in thirty-six equal monthly installments, (c) the forgiveness of a note receivable in the amount of $1.2 million including principal and accrued interest, (d) the assignment of all of the interests in Union Telecard Dominicana, S.A. (“UTA DR”) held by UTA, (e) the assignment of an 80% ownership interest in Ethnic Grocery Brands LLC (“EGB”) held by UTA, and (f) other consideration of $0.4 million. UTA retained a 10% ownership interest in EGB. In addition, effective March 2010, the Company accrued an additional $1.6 million upon the resolution of post-closing contingencies that was recorded as goodwill. The aggregate purchase price was $11.3 million, which included the aggregate estimated fair value of the interests in UTA DR and EGB of $2.0 million. UTA is the distributor of the Company’s prepaid calling cards in the United States. UTA DR and EGB met the criteria to be reported as discontinued operations and accordingly, the assets, liabilities, results of operations and cash flows of UTA DR and EGB are classified as discontinued operations for all periods presented.
 
IDT Carmel
 
On January 30, 2009, IDT Carmel, Inc., IDT Carmel Portfolio Management LLC, and FFPM Carmel Holdings I LLC (all of which are subsidiaries of the Company) (collectively “IDT Carmel”) and Sherman Originator III LLC consummated the sale, pursuant to a Purchase and Sale Contract, of substantially all of IDT Carmel Portfolio Management LLC’s debt portfolios with an aggregate face value of $951.6 million for cash of $18.0 million. The Company exited the debt collection business in April 2009. IDT Carmel met the criteria to be reported as a discontinued operation and accordingly, IDT Carmel’s assets, liabilities, results of operations and cash flows are classified as discontinued operations for all periods presented. Loss on sale of discontinued operations in the three and nine months ended April 30, 2010 of less than $0.1 million and $0.2 million, respectively, included costs which arose from and were directly related to the operations of IDT Carmel prior to its disposal.
 
IDT Entertainment
 
In the first quarter of fiscal 2007, the Company completed the sale of IDT Entertainment to Liberty Media Corporation. Loss on sale of discontinued operations in the nine months ended April 30, 2009 of $0.2 million included compensation which arose from and was directly related to the operations of IDT Entertainment prior to its disposal.
 
Significant Accounting Policies of Discontinued Operations
 
IDT Carmel purchased debt portfolios that experienced deterioration of credit quality at a significantly lower price than their contractual amount. Upon acquisition of debt portfolios, static pools of accounts were established, which were aggregated based on certain common risk criteria. Each static pool was recorded at cost, which included external acquisition costs, and was accounted for as a single unit for the recognition of income, principal payments and loss provision. Once pools were established, they were not changed unless replaced, returned or sold.
 
 
7

 
 
 
The Company, through IDT Carmel, accounted for its purchased debt portfolios in accordance with the accounting standard relating to certain loans or debt securities acquired in a transfer, which provided for recognition of the excess of the undiscounted collections expected at acquisition over the cost of the purchased debt as income. Income was recognized on a level-yield basis over the expected life of the debt (the “effective yield method”) based on the expected internal rate of return (“IRR”). Subsequent increases in cash flows expected to be collected were generally recognized prospectively through an increase to the IRR over the debt’s remaining life. Decreases in cash flows expected to be collected were recognized as impairment. Recognition of income under the effective yield method was dependent on having a reasonable expectation about the timing and amount of cash flows expected to be collected. IDT Carmel used the cost recovery method to account for a portfolio if it could not reasonably predict the timing and amount of collections from the portfolio. Under the cost recovery method, no income was recognized until IDT Carmel fully collected the cost of the portfolio.
 
Summary Financial Data of Discontinued Operations
 
Revenues, (loss) income before income taxes and net (loss) income of CTM Holdings and subsidiaries, Hillview, UTA DR, EGB and IDT Carmel, which are included in discontinued operations, were as follows:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Revenues:
                       
CTM Holdings and subsidiaries
  $     $ 7,120     $ 4,045     $ 23,421  
Hillview
          1,655             4,968  
UTA DR
          16,939             46,360  
EGB
          6,384             19,408  
IDT Carmel
          933             16,535  
                                 
Total
  $     $ 33,031     $ 4,045     $ 110,692  
                                 
                                 
(Loss) income before income taxes:
                               
CTM Holdings and subsidiaries
  $     $ (31,675 )   $ 40     $ (34,386 )
Hillview
          (1,921 )           (2,087 )
UTA DR
          280             (171 )
EGB
          (396 )           (1,716 )
IDT Carmel
          (3,039 )           (38,998 )
                                 
Total
  $     $ (36,751 )   $ 40     $ (77,358 )
                                 
                                 
Net (loss) income:
                               
CTM Holdings and subsidiaries
  $     $ (31,322 )   $ (170 )   $ (34,190 )
Hillview
          (1,921 )           (2,087 )
UTA DR
          280             (171 )
EGB
          (396 )           (1,716 )
IDT Carmel
          (3,039 )           (38,998 )
                                 
Total
  $     $ (36,398 )   $ (170 )   $ (77,162 )
                                 

 
 
8

 
 
 
The assets and liabilities of CTM Holdings and subsidiaries at July 31, 2009 included in discontinued operations consist of the following:
 
   
(in thousands)
 
Assets
     
Cash and cash equivalents
  $ 6,480  
Trade accounts receivable, net
    3,908  
Prepaid expenses
    980  
Investments-short-term
    1,024  
Other current assets
    1,408  
Property, plant and equipment, net
    4,243  
Licenses and other intangibles, net
    588  
Other assets
    159  
         
Assets of discontinued operations
  $ 18,790  
         
Liabilities
       
Trade accounts payable
  $ 1,024  
Accrued expenses
    1,427  
Deferred revenues
    1,731  
Capital lease obligations-current portion
    222  
Other current liabilities
    563  
Capital lease obligations-long-term portion
    526  
Other liabilities
    3  
         
Liabilities of discontinued operations
  $ 5,496  
         

European Prepaid Payment Services Business
 
On July 9, 2009, the Company entered into an agreement for the sale of the capital stock of IDT Financial Services Holding Limited (“IDT Financial Services”), the Company’s European prepaid payment services business. IDT Financial Services provides prepaid MasterCard® products in the United Kingdom under the “Prime Card” brand. In the fourth quarter of fiscal 2009, IDT Financial Services met the criteria to be classified as held for sale and reported as discontinued operations. On October 31, 2009, as a result of certain events that indicated that the buyer was unlikely to complete the transaction, the Company concluded that the sale was no longer probable. Therefore, IDT Financial Services no longer met the criteria to be classified as held for sale and reported as discontinued operations. Accordingly, the assets, liabilities, results of operations and cash flows of IDT Financial Services are classified as continuing operations for all periods presented. The Company currently intends to operate and further develop IDT Financial Services.
 
Note 3—Marketable Securities
 
The Company classifies all of its marketable securities as “available-for-sale” securities. Marketable securities are stated at fair value, with unrealized gains and losses in such securities reflected, net of tax, in “Accumulated other comprehensive income” in the accompanying consolidated balance sheets. The Company’s marketable securities at April 30, 2010 and July 31, 2009 included auction rate securities with an original cost of $14.3 million and an estimated fair value of $0.6 million. In fiscal 2009 and fiscal 2008, the Company recorded an aggregate $13.9 million loss after determining that there were other than temporary declines in the value of these auction rate securities.
 
The following is a summary of marketable securities:
 
   
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
   
(in thousands)
 
April 30, 2010:
                       
Available-for-sale securities:
                       
    Debt securities
  $ 353     $ 234     $     $ 587  
                                 
July 31, 2009:
                       
Available-for-sale securities:
                       
Corporate and other debt securities
  $ 5,508     $ 232     $ (52 )   $ 5,688  
Equity securities
    15             (1 )     14  
Total   $ 5,523     $ 232     $ (53   $ 5,702  
 
 
 
9

 
 
Proceeds from sales and maturities of available-for-sale securities and the gross realized gains that have been included in earnings as a result of those sales and maturities in the nine months ended April 30, 2010 were $4.6 million and $0.3 million, respectively. Proceeds from sales and maturities of available-for-sale securities and the gross realized losses that have been included in earnings as a result of those sales and maturities in the nine months ended April 30, 2009 were $145.3 million and $(10.7) million, respectively. The Company uses the specific identification method in computing the gross realized gains and gross realized losses on the sales of marketable securities.
 
The contractual maturities of the Company’s available-for-sale debt securities at April 30, 2010 were as follows:
 
   
Fair Value
 
   
(in thousands)
 
Within one year
  $ 3  
After one year through five years
     
After five years through ten years
     
After ten years
    584  
         
Total
  $ 587  
         

At April 30, 2010, there were no securities in an unrealized loss position. At July 31, 2009, the following available-for-sale securities were in an unrealized loss position for which other-than-temporary impairments had not been recognized:
 

   
Unrealized Losses
   
Fair Value
 
   
(in thousands)
 
Corporate and other debt securities
  $ 52     $ 5,103  
Equity securities
    1       14  
                 
Total
  $ 53     $ 5,117  
                 

At April 30, 2010 and July 31, 2009, there were no securities in a continuous unrealized loss position for 12 months or longer.
 
Note 4—Fair Value Measurements
 
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:
 
   
Level 1 (1)
   
Level 2 (2)
   
Level 3 (3)
   
Total
 
   
(in thousands)
 
April 30, 2010:
                       
Assets:
                       
Debt securities
  $ 3     $     $ 584     $ 587  
                                 
Liabilities:
                               
Derivative contracts
  $ 91     $     $ 200     $ 291  
                                 
July 31, 2009:
                       
Assets:
                       
Corporate and other debt securities
  $ 3     $     $ 5,685     $ 5,688  
Equity securities
    14                   14  
                                 
Total marketable securities
  $ 17     $     $ 5,685     $ 5,702  
                                 
Liabilities:
                               
Derivative contracts
  $ 493     $     $ 686     $ 1,179  
                                 
 
(1) – quoted prices in active markets for identical assets or liabilities
(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) – no observable pricing inputs in the market

The Company’s marketable securities at April 30, 2010 and July 31, 2009 included auction rate securities with an original cost of $14.3 million. The underlying asset for these securities is preferred stock of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. The fair values of the auction rate securities, which cannot be corroborated by the market, were estimated based on the value of the underlying assets and the Company’s assumptions, and are therefore classified as Level 3.
 
 
 
10

 
 
The Company’s investments in 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 accounting standards relating to investments in limited partnerships and in limited liability companies. The Company’s investments in 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 option to purchase shares of a subsidiary, which is classified as Level 3, and (3) an embedded derivative in a structured note that must be bifurcated, which was classified as Level 3 at July 31, 2009. The stock option was granted in April 2010 by the Company’s subsidiary, Genie Energy Corporation (“Genie”). The Genie stock option is exercisable until April 9, 2015 at an exercise price of $5.0 million, and was fully vested on the date of grant. The fair value of the Genie stock option was estimated using a Black-Scholes valuation model. The fair values of the structured note and the embedded derivative were estimated primarily based on pricing information from the counterparty. The structured note, which was included in marketable securities and was classified as Level 3 at July 31, 2009, matured in November 2009.
 
The following tables summarize the change in the balance of the Company’s assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
   
Three Months Ended
April 30, 2010
   
Three Months Ended
April 30, 2009
 
   
Assets
   
Liabilities
   
Assets
   
Liabilities
 
   
(in thousands)
 
Balance, beginning of period
  $ 429     $     $ 5,619     $ (2,843 )
Total gains (losses) (realized or unrealized):
                               
Included in earnings in “Other income (expense), net”
                (100 )     371  
Included in other comprehensive loss
    155             23        
Purchases, sales, issuances and settlements
          (200 )            
Transfers in (out) of Level 3
                       
                                 
Balance, end of period
  $ 584     $ (200 )   $ 5,542     $ (2,472 )
                                 
The amount of total gains or losses for the period included in earnings in “Other income (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  
                                 

   
Nine Months Ended
April 30, 2010
   
Nine Months Ended
April 30, 2009
 
   
Assets
   
Liabilities
   
Assets
   
Liabilities
 
   
(in thousands)
 
Balance, beginning of period
  $ 5,685     $ (686 )   $ 53,265     $ (155 )
Total gains (losses) (realized or unrealized):
                               
Included in earnings in “Other income (expense), net”
    (156 )     286       (8,671 )     (2,317 )
Included in other comprehensive loss
    55             3,028        
Purchases, sales, issuances and settlements
    (5,000 )     200       (42,080 )      
Transfers in (out) of Level 3
                       
                                 
Balance, end of period
  $ 584     $ (200 )   $ 5,542     $ (2,472 )
                                 
The amount of total gains or losses for the period included in earnings in “Other income (expense), net” attributable to the change in unrealized gains or losses relating to assets or liabilities still held at the end of the period
  $     $     $ (6,750 )   $ (2,317 )
                                 

Fair Value of Other Financial Instruments
 
The estimated fair value of the Company’s other financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting this data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. At April 30, 2010 and July 31, 2009, the carrying value of the Company’s financial instruments included in trade accounts receivable, prepaid expenses, investments-short-term, other current assets, trade accounts payable, accrued expenses, deferred revenue, income taxes payable, capital lease obligations—current portion, notes payable—current portion and other current liabilities approximate fair value because of the short period of time to maturity. At April 30, 2010 and July 31, 2009, the carrying value of the long term portion of the Company’s notes payable and capital lease obligations and the Company’s other non-current liabilities approximate fair value as their contractual interest rates approximate market yields for similar debt instruments.
 
 
11

 
 
The Company’s investments-long-term at April 30, 2010 and July 31, 2009 included investments in the equity of certain privately held entities that are accounted at cost. It is not practicable to estimate the fair value of these investments because of the lack of a quoted market price for the shares of these entities, and the inability to estimate their fair value without incurring excessive cost. The carrying value of these investments was $0.9 million and $3.1 million at April 30, 2010 and July 31, 2009, respectively, which the Company believes was not impaired.
 
Note 5—Derivative Instruments
 
The primary risks managed by the Company using derivative instruments are commodity price risk. Natural gas and electricity forward contracts are entered into to fix the price that IDT Energy will pay for specified amounts of natural gas and electricity on specified dates. An interest rate swap was used until June 2009 to achieve a fixed interest rate on a portion of the Company’s variable-rate debt. In addition, one of the Company’s marketable securities was a structured note that contained an embedded derivative feature. The structured note had a par value of $5.0 million and matured in November 2009.
 
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, 2010, IDT Energy had the following outstanding forward contracts:

Commodity
Settlement Date
Volume
Electricity
April 2010
8,800 MWh
Electricity
May 2010
8,000 MWh
Natural gas
November 2010
75,000 mmbtu
Natural gas
December 2010
77,500 mmbtu
Natural gas
January 2011
77,500 mmbtu
Natural gas
February 2011
70,000 mmbtu
Natural gas
March 2011
77,500 mmbtu

The Company’s subsidiary, Genie Energy Corporation, granted an option to purchase shares of its common stock in April 2010 that is subject to derivative accounting. The Genie stock option is exercisable until April 9, 2015 at an exercise price of $5.0 million, and was fully vested on the date of grant.
 
The Company had an interest rate swap related to the variable rate obligations secured by a building. In June 2009, the building was sold, at which time the obligation was repaid and the interest rate swap was settled.
 
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,
2010
   
July 31,
2009
 
       
(in thousands)
 
Derivatives not designated or not qualifying as hedging instruments:
               
Energy contracts
 
Other current liabilities
  $ 91     $ 493  
Structured note embedded derivative
 
Other current liabilities
          686  
Genie stock option
 
Other liabilities
    200        
                     
Total liability derivatives
      $ 291     $ 1,179  
                     
 
 
 
12

 
 

 
The effects of derivative instruments on the condensed consolidated statements of operations were as follows:
 
   
Amount of Gain (Loss) Recognized on Derivatives
 
                         
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
 Derivatives not designated or not qualifying as hedging instruments
 
Location of Gain (Loss) Recognized on Derivatives
 
2010
   
2009
   
2010
   
2009
 
       
(in thousands)
 
Energy contracts
 
Direct cost of revenues
  $ 48     $ (290 )   $ 402     $ (1,067 )
Interest rate contracts
 
Other income (expense), net
          54             (321 )
Structured note embedded derivative
 
Other income (expense), net
          317       286       (1,996 )
                                 
Total
      $ 48     $ 81     $ 688     $ (3,384 )

The Company is exposed to credit loss in the event of nonperformance by counterparties on certain of 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 counterparties that the Company considers creditworthy.
 
Note 6—Investment in American Shale Oil, LLC
 
In April 2008, American Shale Oil Corporation (“AMSO”), a wholly-owned subsidiary of the Company, acquired a 75% equity interest in American Shale Oil, L.L.C. (“AMSO, LLC”), in exchange for cash of $2.5 million and certain commitments for future funding of AMSO, LLC’s operations. In a separate transaction in April 2008, the Company acquired an additional 14.9437% equity interest in AMSO, LLC in exchange for cash of $3.0 million.
 
AMSO, LLC is one of three holders of leases granted by the U.S. Bureau of Land Management (“BLM”) to research, develop and demonstrate in-situ technologies for potential commercial shale oil production (“RD&D Leases”) in western Colorado. The RD&D Lease awarded to AMSO, LLC by the BLM covers an area of 160 acres. The lease runs for a ten year period beginning on January 1, 2007, and is subject to an extension of up to five years if AMSO, LLC can demonstrate that a process leading to the production of commercial quantities of shale oil is diligently being pursued. Once AMSO, LLC demonstrates the economic and environmental viability of its technology, it will have the opportunity to submit a one time payment pursuant to the Oil Shale Management Regulations and convert its RD&D Lease to a commercial lease on 5,120 acres which overlap and are contiguous with the 160 acres in its RD&D Lease.
 
In March 2009, pursuant to a Member Interest Purchase Agreement entered into on December 19, 2008, TOTAL E&P Research & Technology USA, (“Total”), a subsidiary of TOTAL S.A., the world’s fifth largest integrated oil and gas company, acquired a 50% interest in AMSO, LLC in exchange for cash paid to the Company of $3.2 million and Total’s commitment to fund the majority of AMSO, LLC’s research, development and demonstration expenditures. The Company recognized a gain of $2.6 million in the three months ended April 30, 2009 in connection with the sale. While AMSO is the operator of the project during the RD&D phase, Total will provide a majority of the funding during the RD&D phase, and technical assistance throughout the life of the project. Total will lead the planning of the commercial development and will assume management responsibilities during the subsequent commercial phase.
 
The Company consolidated AMSO, LLC prior to the closing of the transaction with Total. Beginning with the closing, the Company accounts for its 50% ownership interest in AMSO, LLC using the equity method since the Company has the ability to exercise significant influence over its operating and financial matters, although it no longer controls AMSO, LLC. AMSO, LLC is a variable interest entity, however, the Company is not the primary beneficiary because it will not absorb a majority of the expected losses or receive a majority of the expected residual returns.
 
 
13

 
 
 
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.
 
   
Nine Months Ended April 30, 2010
   
Period from March 2, 2009 to July 31, 2009
 
   
(in thousands)
 
Balance, beginning of period
  $ 278     $ (65 )
Capital contributions
    744       1,074  
Equity in net loss of AMSO, LLC
    (1,148 )     (731 )
                 
Balance, end of period
  $ (126 )   $ 278  

On May 3, 2010, AMSO made an additional capital contribution to AMSO, LLC of $0.5 million.
 
The investment in AMSO, LLC is included in the consolidated balance sheet in current liabilities at April 30, 2010 and in “Investments-long-term” at July 31, 2009, and equity in net loss of AMSO, LLC is included in “Other income (expense), net” in the consolidated statement of operations.
 
In accordance with the agreement between the parties, AMSO has committed to a total investment of $10.0 million in AMSO, LLC, subject to certain exceptions described below where the amount could be greater or lesser. Total has the option of withdrawing from AMSO, LLC and terminating its obligation to make capital contributions at the end of the first phase, and in that case AMSO’s commitment would be reduced to $5.3 million.
 
Although, subject to certain exceptions, AMSO and Total are not obligated to make additional contributions beyond their respective shares (which for AMSO is $10.0 million), they could dilute or forfeit their ownership interests in AMSO, LLC if they fail to contribute their respective shares for additional funding.
 
Total can increase AMSO’s initial required funding commitment of $10.0 million up to an additional $8.75 million if Total wishes to continue to fund the pilot test up to an agreed upon commitment level.
 
At April 30, 2010, the Company’s estimated maximum exposure to additional loss as a result of its required investment in AMSO, LLC was $7.4 million. The Company’s estimated maximum exposure to additional loss will increase as AMSO’s commitment to fund AMSO, LLC increases. The estimated maximum exposure at April 30, 2010 was determined as follows:
 
   
(in thousands)
 
AMSO’s total committed investment in AMSO, LLC
  $ 10,000  
Less: 20% of capital contributions to AMSO, LLC prior to March 2, 2009
    (807 )
Less: cumulative capital contributions to AMSO, LLC on and after March 2, 2009
    (1,818 )
         
Estimated maximum exposure to additional loss
  $ 7,375  
 
AMSO’s total committed investment in AMSO, LLC and its estimated maximum exposure to additional loss is subject to certain exceptions where the amounts could be greater. One exception is the additional funding that may be necessary to fund the pilot test as described above. The other significant exception is additional capital contributions that may be required to fund unexpected liabilities, in the event they occur, outside the purview of the traditional research, development and demonstration operations incorporated in AMSO, LLC’s budgeting and planning. However, any additional capital contributions for such liabilities would have to be authorized by both AMSO and Total.
 
 
14

 
 
Summarized unaudited balance sheets of AMSO, LLC are as follows:
 
   
April 30,
2010
   
July 31,
2009
 
   
(in thousands)
 
Assets
           
Cash and cash equivalents
  $ 2,653     $ 2,088  
Other current assets
    204       451  
Equipment, net
    18       8  
Other assets
    453        
                 
Total assets
  $ 3,328     $ 2,547  
                 
Liabilities and members’ interests
               
Current liabilities
  $ 1,475     $ 960  
Other liabilities
    194        
Members’ interests
    1,659       1,587  
                 
Total liabilities and members’ interests
  $ 3,328     $ 2,547  

Summarized unaudited statements of operations of AMSO, LLC are as follows:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Revenues
  $     $     $     $  
Costs and expenses:
                               
Research and development
    2,181       1,086       5,740       4,113  
                                 
Total costs and expenses
    2,181       1,086       5,740       4,113  
                                 
Loss from operations
    (2,181 )     (1,086 )     (5,740 )     (4,113 )
Other (expense) income
    (1 )     2       (1 )     2  
                                 
Net loss
  $ (2,182 )   $ (1,084 )   $ (5,741 )   $ (4,111 )
                                 

Note 7—Equity
 
Changes in the components of equity were as follows:
 
   
Nine Months Ended
April 30, 2010
 
   
Attributable to IDT Corporation
   
Noncontrolling Interests
   
Total
 
   
(in thousands)
 
Balance, July 31, 2009
  $ 176,294     $ 3,148     $ 179,442  
Restricted Class B common stock purchased from employee
    (5 )           (5 )
Repurchases of common stock and Class B common stock through repurchase program
    (1,790 )           (1,790 )
Distributions
          (1,934 )     (1,934 )
Sales of stock of subsidiaries
    3,716       1,774       5,490  
CTM Spin-Off
    (14,169 )     (1,617 )     (15,786 )
Stock based compensation
    2,207             2,207  
Comprehensive loss:
                       
Net income
    12,835       (82 )     12,753  
Other comprehensive loss
    (222 )           (222 )
                         
Comprehensive income
    12,613       (82 )     12,531  
                         
Balance, April 30, 2010
  $ 178,866     $ 1,289     $ 180,155  
                         
 
On August 1, 2009, the Company adopted the accounting standard relating to noncontrolling interests in consolidated financial statements (see Note 15).
 
 
15

 
 
Stock Repurchase Program
 
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, 2010, the Company repurchased an aggregate of 0.2 million shares of Class B common stock and 0.5 million shares of common stock for an aggregate purchase price of $1.8 million. 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. As of April 30, 2010, 5.4 million shares remained available for repurchase under the stock repurchase program.
 
Sales of Stock of Subsidiaries
 
In April 2010, Genie sold shares of its common stock and an option to purchase additional shares of Genie for an aggregate of $5.4 million. Michael Steinhardt, the Chairman of the Board of Israel Energy Initiatives, Ltd. (“IEI”), purchased a minority interest in Genie and an option to purchase additional shares of Genie for $5.0 million. The option is exercisable until April 9, 2015 at an exercise price of $5.0 million, and the option was fully vested on the date of grant. In addition, Wes Perry, the Chairman of the Board of Genie, purchased a minority interest in Genie for $0.4 million. At April 30, 2010, the estimated fair value of the option of $0.2 million was included in “Other liabilities” in the accompanying consolidated balance sheet.
 
On March 29, 2010, Shaman II, L.P. purchased additional shares in the Company’s subsidiary, Zedge Holdings, Inc. (“Zedge”), for cash of $0.3 million, which increased Shaman II, L.P.’s ownership interest in Zedge from 10% to approximately 11%. One of the limited partners in Shaman II, L.P. is a former employee of the Company.
 
Stock Based Compensation
 
On October 21, 2009, upon the retirement of Mr. James A. Courter as the Company’s Chief Executive Officer, Mr. Courter surrendered options to purchase an aggregate of 0.9 million shares of the Company’s Class B common stock (which constituted all of such options held by Mr. Courter) and received a grant of 0.3 million restricted shares of the Company’s Class B common stock. All of the restricted shares were vested on the date of grant. In the nine months ended April 30, 2010, the Company recognized $0.6 million of stock based compensation as a result of the grant of the restricted stock. Pursuant to a Warrant to Purchase Common Stock executed by the Company and Mr. Courter, for a period of five years from October 21, 2009, and subject to certain conditions, Mr. Courter will have the right to exchange 0.2 million of the shares of the Company’s Class B common stock for the number of shares of common stock of Genie equal to 1% of the outstanding equity of Genie as of October 21, 2009.
 
On October 31, 2008, the Company entered into an Amended and Restated Employment Agreement with Mr. Howard S. Jonas, the Company’s Chairman of the Board and as of October 22, 2009 the Company’s Chief Executive Officer. Pursuant to this agreement (i) the term of Mr. Jonas’ employment with the Company runs until December 31, 2013 and (ii) Mr. Jonas was granted 1.2 million restricted shares of the Company’s Class B common stock and 0.9 million restricted shares of the Company’s common stock in lieu of a cash base salary beginning January 1, 2009 through December 31, 2013. The restricted shares vest in different installments throughout the term of Mr. Jonas’ employment as delineated in the agreement, and all of the restricted shares paid to Mr. Jonas under the agreement automatically vest in the event of (i) a change in control of the Company; (ii) Mr. Jonas’ death; or (iii) if Mr. Jonas is terminated without cause or if he terminates his employment for good reason as defined in the agreement. A pro rata portion of the restricted shares will vest in the event of termination for cause. Total unrecognized compensation cost on the grant date was $5.5 million. The unrecognized compensation cost is expected to be recognized over the vesting period from January 1, 2009 through December 31, 2013. The Company recognized compensation cost related to this agreement of $0.2 million and $0.6 million in the three and nine months ended April 30, 2010, respectively, and $0.2 million and $0.3 million in the three and nine months ended April 30, 2009, respectively.
 
On November 5, 2008, the Company amended Mr. Courter’s employment agreement. Pursuant to the amendment, Mr. Courter was granted 0.4 million restricted shares of the Company’s Class B common stock in lieu of a cash base salary from January 1, 2009 until October 21, 2009. The restricted shares vested on October 21, 2009, the last day of the term under the amended employment agreement. Total unrecognized compensation cost on the grant date was $0.8 million. The Company recognized compensation cost related to this agreement of nil and $0.2 million in the three and nine months ended April 30, 2010, respectively, and $0.2 million and $0.3 million in the three and nine months ended April 30, 2009, respectively.
 
Note 8—Earnings Per Share
 
Basic earnings per share is computed by dividing net income (loss) attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include non-vested restricted stock and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.
 
 
 
16

 
 
The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Basic weighted-average number of shares
    20,523       22,052       20,425       23,081  
Effect of dilutive securities:
                               
Non-vested restricted common stock
    610             458        
Non-vested restricted Class B common stock
    745             427        
                                 
Diluted weighted-average number of shares
    21,878       22,052       21,310       23,081  
                                 

The following securities have been excluded from the dilutive earnings per share computations because their inclusion would have been anti-dilutive:
 
   
At April 30,
 
   
2010
   
2009
 
   
(in thousands)
 
Stock options
    771       2,029  
Non-vested restricted common stock
          883  
Non-vested restricted Class B common stock
          1,630  
                 
Total
    771       4,542  

For the three and nine months ended April 30, 2010, outstanding stock options were not included in the diluted earnings per share because they were anti-dilutive, since the exercise prices of the stock options were greater than the average market price of the Company’s stock during the periods. For the three and nine months ended April 30, 2009, 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 assumed vesting of non-vested restricted stock would have been anti-dilutive.
 
Note 9—Comprehensive Income (Loss)
 
The Company’s comprehensive income (loss) consists of the following:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Net income (loss)
  $ 12,491     $ (62,614 )   $ 12,753     $ (162,775 )
Foreign currency translation adjustments
    (343 )     1,060       (276 )     (13,005 )
Unrealized gains on available-for-sale securities
    154       35       54       3,033  
                                 
Comprehensive income (loss)
    12,302       (61,519 )     12,531       (172,747 )
Comprehensive (income) loss attributable to noncontrolling interests
    116       (822 )     82       95  
                                 
Comprehensive income (loss) attributable to IDT Corporation
  $ 12,418     $ (62,341 )   $ 12,613     $ (172,652 )
                                 

Note 10—Impairments
 
The Company’s impairments by business segment consist of the following:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Telecom Platform Services
  $ 5     $ 29,039     $ 5     $ 29,052  
All Other
          305       (106 )     9,092  
                                 
Total
  $ 5     $ 29,344     $ (101 )   $ 38,144  
                                 
 
 
 
17

 

 
The Company recorded aggregate impairment charges of $38.1 million in the nine months ended April 30, 2009 of which $29.0 million related to goodwill, $5.3 million related to Federal Communications Commission (“FCC”) licenses and $3.8 million related to other assets. Certain events and circumstances in the second quarter of fiscal 2009 indicated that the fair value of certain of the Company’s reporting units may be below their carrying value. 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 certain reporting units, therefore the Company 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 goodwill impairment of $29.0 million in its Telecom Platform Services - Rechargeable reporting unit, which reduced the carrying amount of the goodwill to zero. 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 and assumptions prove to be incorrect, the Company may record additional goodwill impairment in future periods and such impairments could be material.
 
IDT Spectrum, which is included in All Other, holds a significant number of FCC licenses for commercial fixed wireless spectrum. Certain events and circumstances in the second quarter of fiscal 2009 indicated that these FCC licenses may be impaired. IDT Spectrum recorded impairment charges in the nine months ended April 30, 2009 of $5.3 million, which reduced the carrying value of its FCC licenses to zero. The Company estimated the fair value of these FCC licenses based on IDT Spectrum’s continuing operating losses and projected losses for the foreseeable future.
 
Also in the nine months ended April 30, 2009, the Company recorded an impairment charge of $3.5 million which reduced the carrying value of a building held for sale. The building was sold in June 2009.
 
Note 11—Restructuring Charges
 
The Company’s restructuring charges by business segment consist of the following:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Telecom Platform Services
  $ 820     $ 301     $ 1,398     $ 4,191  
IDT Energy
                63       15  
All Other
    8       (33 )     32       905  
Corporate
    2,055       268       3,059       2,609  
                                 
Total
  $ 2,883     $ 536     $ 4,552     $ 7,720  
                                 

The restructuring charges in the three and nine months ended April 30, 2010 and 2009 consisted primarily of severance related to a company-wide cost savings program and reduction in force. The Telecom Platform Services segment’s restructuring charges in the nine months ended April 30, 2009 are net of the reversal of accrued severance of $2.6 million as a result of modifications to retention and severance agreements with certain employees. The restructuring charges in the 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 Telecom Platform Services.
 
The following table summarizes the changes in the reserve balances related to the Company’s restructuring activities (substantially all of which relates to workforce reductions):
 
   
Balance at
July 31,
2009
   
Charged to
Expense
   
Payments
   
Non-cash
Charges
   
Balance at
April 30,
2010
 
   
(in thousands)
 
IDT Telecom
  $ 2,918     $ 1,398     $ (3,343 )   $ 30     $ 1,003  
IDT Energy
          63       (63 )            
All Other
    16       32       (45 )           3  
Corporate
    3,622       3,059       (2,260 )     (383 )     4,038  
                                         
Total
  $ 6,556     $ 4,552     $ (5,711 )   $ (353 )   $ 5,044