10-Q 1 f10q0413_idtcorporation.htm QUARTERLY REPORT f10q0413_idtcorporation.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, 2013
 
or
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 1-16371


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


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

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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
x
       
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
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 4, 2013, the registrant had the following shares outstanding:
 
Class A common stock, $.01 par value:
1,574,326 shares outstanding (excluding 1,698,000 treasury shares)
Class B common stock, $.01 par value:
21,324,715 shares outstanding (excluding 2,878,483 treasury shares)



 
 
 
 
 
IDT CORPORATION
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
3
     
Item 1.
Financial Statements (Unaudited)
3
     
 
Consolidated Balance Sheets
3
     
 
Consolidated Statements of Operations
4
     
 
Consolidated Statements of Comprehensive Income
5
     
 
Consolidated Statements of Cash Flows
6
     
 
Notes to Consolidated Financial Statements
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
31
     
Item 4.
Controls and Procedures
31
   
PART II. OTHER INFORMATION
32
     
Item 1.
Legal Proceedings
32
     
Item 1A.
Risk Factors
32
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
33
     
Item 3.
Defaults upon Senior Securities
33
     
Item 4.
Mine Safety Disclosures
33
     
Item 5.
Other Information
33
     
Item 6.
Exhibits
34
   
SIGNATURES
35
 
 
 

 
 
PART I. FINANCIAL INFORMATION
 
Item 1.       Financial Statements (Unaudited)
 
IDT CORPORATION
CONSOLIDATED BALANCE SHEETS
 
   
April 30,
2013
   
July 31,
2012
 
   
(Unaudited)
   
(Note 1)
 
   
(in thousands)
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 152,081     $ 151,504  
Restricted cash and cash equivalents—short-term
    29,058       12,636  
Marketable securities
    10,830        
Trade accounts receivable, net of allowance for doubtful accounts of $13,428 at April 30, 2013 and $13,055 at July 31, 2012
    63,994       83,054  
Prepaid expenses
    22,210       18,800  
Deferred income tax assets, net—current portion
    2,799       5,142  
Other current assets
    12,120       17,522  
                 
Total current assets
    293,092       288,658  
Property, plant and equipment, net
    85,435       85,567  
Goodwill
    14,778       14,614  
Other intangibles, net
    1,449       1,907  
Investments
    9,819       7,133  
Restricted cash and cash equivalents—long-term
    9,471       9,466  
Deferred income tax assets, net—long-term portion
    22,298       31,744  
Other assets
    10,065       12,025  
                 
Total assets
  $ 446,407     $ 451,114  
                 
Liabilities and equity
               
Current liabilities:
               
Trade accounts payable
  $ 33,120     $ 39,845  
Accrued expenses
    151,000       161,266  
Deferred revenue
    89,923       84,588  
Customer deposits
    25,213       10,524  
Income taxes payable
    1,657       1,337  
Notes payable—current portion
    21,831       560  
Other current liabilities
    3,709       3,245  
                 
Total current liabilities
    326,453       301,365  
Notes payable—long-term portion
    6,689       29,716  
Other liabilities
    8,147       17,308  
                 
Total liabilities
    341,289       348,389  
Commitments and contingencies
               
Equity:
               
IDT Corporation stockholders’ equity:
               
Preferred stock, $.01 par value; authorized shares—10,000; no shares issued
           
Class A common stock, $.01 par value; authorized shares—35,000; 3,272 shares issued and 1,574 shares outstanding at April 30, 2013 and July 31, 2012
    33       33  
Class B common stock, $.01 par value; authorized shares—200,000; 24,151 and 24,112 shares issued and 21,273 and 21,342 shares outstanding at April 30, 2013 and July 31, 2012, respectively
    242       241  
Additional paid-in capital
    399,379       395,869  
Treasury stock, at cost, consisting of 1,698 and 1,698 shares of Class A common stock and 2,878 and 2,770 shares of Class B common stock at April 30, 2013 and July 31, 2012, respectively
    (98,836 )     (97,757 )
Accumulated other comprehensive income
    1,630       202  
Accumulated deficit
    (198,224 )     (196,358 )
                 
Total IDT Corporation stockholders’ equity
    104,224       102,230  
Noncontrolling interests
    894       495  
                 
Total equity
    105,118       102,725  
                 
Total liabilities and equity
  $ 446,407     $ 451,114  
 
See accompanying notes to consolidated financial statements.
 
 
3

 
 
IDT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands, except per share data)
 
Revenues
  $ 397,221     $ 379,719     $ 1,209,491     $ 1,121,945  
Costs and expenses:
                               
Direct cost of revenues (exclusive of depreciation and amortization)
    331,178       319,811       1,010,941       945,528  
Selling, general and administrative (i)
    55,229       51,254       166,854       154,589  
Depreciation and amortization
    3,972       4,163       10,972       12,836  
Research and development
    1,717       1,191       4,918       3,320  
                                 
Total costs and expenses
    392,096       376,419       1,193,685       1,116,273  
Other operating gains (losses), net
    9,601       (1,138 )     9,401       (10,540 )
                                 
Income (loss) from operations
    14,726       2,162       25,207       (4,868 )
Interest expense, net
    (443 )     (434 )     (790 )     (2,262 )
Other income (expense), net
    2,433       (564 )     5,133       (804 )
                                 
Income (loss) from continuing operations before income taxes
    16,716       1,164       29,550       (7,934 )
(Provision for) benefit from income taxes
    (7,592 )     2,285       (12,763 )     6,224  
                                 
Income (loss) from continuing operations
    9,124       3,449       16,787       (1,710 )
Discontinued operations, net of tax:
                               
Income from discontinued operations
                      1,015  
Income on sale of discontinued operations
                      2,000  
                                 
Total discontinued operations
                      3,015  
                                 
Net income
    9,124       3,449       16,787       1,305  
Net (income) loss attributable to noncontrolling interests
    (433 )     (460 )     (1,529 )     14  
                                 
Net income attributable to IDT Corporation
  $ 8,691     $ 2,989     $ 15,258     $ 1,319  
                                 
Amounts attributable to IDT Corporation common stockholders:
                               
Income (loss) from continuing operations
  $ 8,691     $ 2,989     $ 15,258     $ (2,591 )
Income from discontinued operations
                      3,910  
                                 
Net income
  $ 8,691     $ 2,989     $ 15,258     $ 1,319  
                                 
Earnings per share attributable to IDT Corporation common stockholders:
                               
Basic:
                               
Income (loss) from continuing operations
  $ 0.42     $ 0.14     $ 0.73     $ (0.13 )
Income from discontinued operations
                      0.19  
                                 
Net income
  $ 0.42     $ 0.14     $ 0.73     $ 0.06  
                                 
Weighted-average number of shares used in calculation of basic earnings per share
    20,905       21,041       20,847       20,633  
                                 
Diluted:
                               
Income (loss) from continuing operations
  $ 0.39     $ 0.14     $ 0.69     $ (0.13 )
Income from discontinued operations
                      0.19  
                                 
Net income
  $ 0.39     $ 0.14     $ 0.69     $ 0.06  
                                 
Weighted-average number of shares used in calculation of diluted earnings per share
    22,360       22,084       22,178       20,633  
                                 
Dividends declared per common share
  $     $ 0.15     $ 0.75     $ 0.51  
                                 
(i) Stock-based compensation included in selling, general and administrative expenses
  $ 1,601     $ 1,007     $ 5,631     $ 2,623  
 
See accompanying notes to consolidated financial statements. 
 
 
4

 
 
 
IDT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands)
 
Net income
  $ 9,124     $ 3,449     $ 16,787     $ 1,305  
Other comprehensive (loss) income:
                               
Change in unrealized gain on available-for-sale securities
                      4  
Foreign currency translation adjustments
    (1,892 )     1,933       1,381       (896 )
                                 
Other comprehensive (loss) income
    (1,892 )     1,933       1,381       (892 )
                                 
Comprehensive income
    7,232       5,382       18,168       413  
Comprehensive income attributable to noncontrolling interests
    (433 )     (474 )     (1,482 )     (5 )
                                 
Comprehensive income attributable to IDT Corporation
  $ 6,799     $ 4,908     $ 16,686     $ 408  
 
See accompanying notes to consolidated financial statements. 
 
 
5

 
 
IDT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Nine Months Ended
April 30,
 
   
2013
   
2012
 
   
(in thousands)
 
Operating activities
           
Net income
  $ 16,787     $ 1,305  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net income from discontinued operations
          (3,015 )
Depreciation and amortization
    10,972       12,836  
Deferred income taxes
    11,788       (997 )
Provision for doubtful accounts receivable
    2,514       1,322  
Gain on sale of rights in wireless spectrum licenses
          (5,330 )
Interest in the equity of investments
    (1,541 )     (1,029 )
Stock-based compensation
    5,631       2,623  
Change in assets and liabilities:
               
Trade accounts receivable
    16,873       15,605  
Prepaid expenses, other current assets and other assets
    5,230       2,910  
Trade accounts payable, accrued expenses, other current liabilities and other liabilities
    (25,602 )     3,197  
Customer deposits
    12,977       3,640  
Income taxes payable
    320       (4,188 )
Deferred revenue
    4,599       2,089  
                 
Net cash provided by operating activities
    60,548       30,968  
Investing activities
               
Capital expenditures
    (10,928 )     (7,428 )
Deposit on purchase of leasehold interest in building
    (950 )      
Collection of notes receivable
    750        
Increase in investments
    (1,219 )      
Proceeds from sale and redemption of investments
    107       3,165  
Increase in restricted cash and cash equivalents
    (16,723 )     (718 )
Purchase of marketable securities
    (14,130 )      
Proceeds from maturities of marketable securities
    3,285        
Proceeds from sale of rights in wireless spectrum licenses
          6,800  
Proceeds from maturities of certificates of deposit
          3,540  
                 
Net cash (used in) provided by investing activities
    (39,808 )     5,359  
Financing activities
               
Dividends paid
    (17,124 )     (11,599 )
Cash of subsidiaries deconsolidated as a result of the Genie spin-off
          (104,243 )
Distributions to noncontrolling interests
    (1,545 )     (1,180 )
Purchases of stock of subsidiary
    (1,804 )      
Proceeds from sale of stock of subsidiary
    145       133  
Repayments of capital lease obligations
          (1,781 )
Repayments of borrowings
    (180 )     (273 )
Repurchases of Class B common stock
    (1,078 )     (210 )
                 
Net cash used in financing activities
    (21,586 )     (119,153 )
Discontinued operations
               
Net cash used in operating activities
          (889 )
Net cash used in investing activities
          (2,048 )
                 
Net cash used in discontinued operations
          (2,937 )
Effect of exchange rate changes on cash and cash equivalents
    1,423       (2,068 )
                 
Net increase (decrease) in cash and cash equivalents
    577       (87,831 )
Cash and cash equivalents at beginning of period
    151,504       244,301  
                 
Cash and cash equivalents at end of period
  $ 152,081     $ 156,470  
                 
Supplemental schedule of non-cash investing and financing activities
               
Escrow account overages included in other current assets used to reduce notes payable
  $ 1,340     $  
                 
Net assets excluding cash and cash equivalents of subsidiaries deconsolidated as a result of the Genie spin-off
  $     $ 18,803  

See accompanying notes to consolidated financial statements.
 
 
6

 
 
IDT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1—Basis of Presentation
 
The accompanying unaudited 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, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2013. The balance sheet at July 31, 2012 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, 2012, as filed with the U.S. Securities and Exchange Commission (“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 2013 refers to the fiscal year ending July 31, 2013).
 
On May 6, 2013, the Company announced its intention to spin-off its wholly-owned subsidiary Straight Path Communications Inc. (“Straight Path”), to the Company’s stockholders. Straight Path will hold the Company’s interests in Straight Path Spectrum, Inc. (formerly IDT Spectrum, Inc.) and Straight Path IP Group, Inc. (formerly Innovative Communications Technologies, Inc.). Also on May 6, 2013, Straight Path filed a Form 10 registration statement including an initial Information Statement to be sent to the Company’s stockholders, with the SEC. The intent is that Straight Path will be spun-off to the Company’s stockholders as a newly publicly traded company by way of a pro rata distribution of Straight Path’s Class A common stock and Class B common stock to the Company’s stockholders. In the distribution, the Company’s stockholders will receive one share of Straight Path Class A common stock for every five shares of the Company’s Class A common stock and one share of Straight Path Class B common stock for every five shares of the Company’s Class B common stock held on the record date for the spin-off. In connection with the planned spin-off, the Company expects to transfer cash to Straight Path prior to the spin-off such that Straight Path will have approximately $15 million in cash at the time of the spin-off. Completion of the spin-off is subject to final approval by the Company’s Board of Directors, and effectiveness of the Form 10 registration statement filed with the SEC. The Company expects to receive a favorable opinion as to the spin-off’s tax-free status prior to consummation. 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.
 
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 $0.2 million and $0.3 million in the three months ended April 30, 2013 and 2012, respectively, and $0.7 million and $0.9 million in the nine months ended April 30, 2013 and 2012, respectively, were recorded on a gross basis and included in “Revenues” and “Direct cost of revenues” in the accompanying consolidated statements of operations.
 
Note 2— Discontinued Operations
 
Genie Energy Ltd.
 
On October 28, 2011, the Company completed a pro rata distribution of the common stock of the Company’s subsidiary, Genie Energy Ltd. (“Genie”), to the Company’s stockholders of record as of the close of business on October 21, 2011. At the time of the Genie spin-off, Genie owned 99.3% of Genie Energy International Corporation, which owned 100% of IDT Energy and 92% of Genie Oil and Gas, Inc. As of October 28, 2011, each of the Company’s stockholders received one share of Genie Class A common stock for every share of the Company’s Class A common stock and one share of Genie Class B common stock for every share of the Company’s Class B common stock held of record as of the close of business on October 21, 2011. Genie 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.
 
The Company received a ruling from the Internal Revenue Service (“IRS”) substantially to the effect that, for U.S. federal income tax purposes, the distribution of shares of Genie common stock will qualify as tax-free for Genie, the Company and the Company’s stockholders under Section 355 of the Internal Revenue Code of 1986 (the “Code”). In addition to obtaining the IRS ruling, the Company received an opinion from PricewaterhouseCoopers LLP on the three requirements for a tax-free distribution that are not addressed in the IRS ruling. Specifically, the opinion concludes that the distribution (i) should satisfy the business purpose requirement of the Code for a tax-free distribution, (ii) should not be viewed as being used principally as a device for the distribution of earnings and profits of the distributing corporation or the controlled corporation or both, and (iii) should not be viewed as part of a plan (or series of related transactions) pursuant to which one or more persons will acquire directly or indirectly stock representing a 50 percent or greater interest in the distributing corporation or controlled corporation within the meaning of the relevant section of the Code.
 
 
7

 
 
In connection with the Genie spin-off, the Company funded Genie with a total of $106.0 million in aggregate cash and cash equivalents, including restricted cash.
 
The Company entered into various agreements with Genie prior to the spin-off including a Separation and Distribution Agreement to effect the separation and provide a framework for the Company’s relationship with Genie after the spin-off, and a Transition Services Agreement, which provides for certain services to be performed by the Company and Genie to facilitate Genie’s transition into a separate publicly-traded company. These agreements provide for, among other things, (1) the allocation between the Company and Genie of employee benefits, taxes and other liabilities and obligations attributable to periods prior to the spin-off, (2) transitional services to be provided by the Company relating to human resources and employee benefits administration, (3) the allocation of responsibilities relating to employee compensation and benefit plans and programs and other related matters, (4) finance, accounting, tax, internal audit, facilities, investor relations and legal services to be provided by the Company to Genie following the spin-off and (5) specified administrative services to be provided by Genie to certain of the Company’s foreign subsidiaries. In addition, the Company entered into a Tax Separation Agreement with Genie, which sets forth the responsibilities of the Company and Genie with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the spin-off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods.
 
The Company’s Chairman of the Board and Chief Executive Officer, Howard S. Jonas, is the controlling stockholder and Chairman of the Board of Genie. The Company’s selling, general and administrative expenses were reduced by $1.0 million and $0.8 million in the three months ended April 30, 2013 and 2012, respectively, and $3.2 million and $1.8 million in the nine months ended April 30, 2013 and 2012, respectively, as a result of the fees the Company charged to Genie for services provided pursuant to the Transition Services Agreement, net of the amounts charged by Genie to certain of the Company’s foreign subsidiaries. At April 30, 2013 and July 31, 2012, other current assets reported in the Company’s consolidated balance sheet included receivables from Genie of $0.7 million.
 
IDT Entertainment
 
In connection with the sale of IDT Entertainment to Liberty Media Corporation in the first quarter of fiscal 2007, the Company was eligible to receive additional consideration from Liberty Media based upon any appreciation in the value of IDT Entertainment over the five-year period that ended in August 2011, however, the Company may have been required to pay Liberty Media up to $3.5 million if the value of IDT Entertainment did not exceed a certain amount by August 2011. In September 2011, the Company and Liberty Media executed an agreement to settle and resolve all claims related to the additional consideration and certain other disputes and claims. Liberty Media paid the Company $2.0 million in September 2011 in consideration for the settlement and related releases, which is included in “Income on sale of discontinued operations” in the accompanying consolidated statement of operations.
 
Summary Financial Data of Discontinued Operations
 
Revenues, income before income taxes and net income of Genie and subsidiaries, which are included in discontinued operations, were as follows:

   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands)
 
Revenues
  $     $     $     $ 45,796  
                                 
Income before income taxes
  $     $     $     $ 2,609  
                                 
Net income
  $     $     $     $ 1,015  
 
 
8

 
 
Note 3—Other Operating Gains (Losses), Net
 
The following table summarizes the other operating gains (losses), net by business segment:

   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands)
 
Telecom Platform Services-gains (losses) related to legal matters, net (see Note 9)
  $ 9,601     $ (6,468 )   $ 9,251     $ (6,698 )
Telecom Platform Services-gain on settlement of claim (a)
                      1,750  
Telecom Platform Services-loss on settlement of litigation (b)
                      (11,022 )
All Other-gain on settlement of claim
                150        
All Other-gain on sale of rights in wireless spectrum licenses (c)
          5,330             5,330  
Corporate-other
                      100  
                                 
Total
  $ 9,601     $ (1,138 )   $ 9,401     $ (10,540 )

(a) On January 17, 2012, the Company received $1.8 million from Broadstripe, LLC in settlement of the Company’s claim stemming from Broadstripe, LLC’s rejection of its telephony services agreements with the Company upon the confirmation of Broadstripe, LLC’s bankruptcy plan and closing of its bankruptcy sale.
 
(b) On October 12, 2011, the Company entered into a binding term sheet with T-Mobile USA, Inc. (“T-Mobile”) to settle litigation related to an alleged breach of a wholesale supply agreement. In consideration of the settlement of all disputes between the parties, on October 13, 2011, the Company paid T-Mobile $10 million. The Company incurred legal fees of $1.0 million in connection with this matter.
 
(c) In March and April 2012, the Company’s subsidiary Straight Path Spectrum closed on the sale of rights in spectrum partitioned and/or disaggregated from eight of its spectrum licenses covering metropolitan areas from its nationwide portfolio. The Company received cash of $6.8 million in exchange for the rights in the licenses and recorded a gain of $5.3 million on the sale.
 
Note 4—Marketable Securities
 
 The following is a summary of marketable securities at April 30, 2013. The Company did not have any marketable securities at July 31, 2012.
 
   
Amortized
Cost
   
Gross
Unrealized Gains
   
Gross
Unrealized Losses
   
Fair Value
 
   
(in thousands)
 
Available-for-sale securities:
                       
Certificates of deposit*
  $ 6,247     $     $     $ 6,247  
Federal Farm Credit Bank debt security
    260                   260  
Municipal bonds
    4,323                   4,323  
                                 
Total
  $ 10,830     $     $     $ 10,830  

*Each of the Company’s certificates of deposit has a CUSIP, was purchased in the secondary market through a broker and may be sold in the secondary market.
 
Proceeds from maturities of available-for-sale securities were $3.3 million and nil in the nine months ended April 30, 2013 and 2012, respectively. There were no realized gains or losses from sales of available-for-sale securities in the nine months ended April 30, 2013 and 2012. The Company uses the specific identification method in computing the gross realized gains and gross realized losses on the sales of marketable securities.
 
 
9

 
 
The contractual maturities of the Company’s available-for-sale securities at April 30, 2013 were as follows:
 
   
Fair Value
 
   
(in thousands)
 
Within one year
  $ 10,830  
After one year through five years
     
After five years through ten years
     
After ten years
     
         
Total
  $ 10,830  

Note 5—Fair Value Measurements
 
The following table presents the balance of assets at April 30, 2013 measured at fair value on a recurring basis:
 
   
Level 1 (1)
   
Level 2 (2)
   
Level 3 (3)
   
Total
 
   
(in thousands)
 
Available-for-sale securities
  $     $ 10,830     $     $ 10,830  

(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

At April 30, 2013, the Company did not have any liabilities measured at fair value on a recurring basis. At April 30, 2013 and July 31, 2012, the Company had $7.8 million and $6.4 million, respectively, in investments in hedge funds, of which $0.1 million and $0.1 million, respectively, were included in “Other current assets” and $7.7 million and $6.3 million, respectively, were included in “Investments—long-term” in the accompanying consolidated balance sheets. The Company’s investments in hedge funds are accounted for using the equity method or the cost method, therefore investments in hedge funds are not measured at fair value.
 
Fair Value of Other Financial Instruments
 
The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these 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.
 
Cash and cash equivalents, restricted cash and cash equivalents—short-term, other current assets, customer deposits, notes payable—current portion and other current liabilities. At April 30, 2013 and July 31, 2012, the carrying amount of these assets approximated fair value because of the short period of time to maturity. The fair value estimates for cash, cash equivalents and restricted cash and cash equivalents—short-term were classified as Level 1 and other current assets, customer deposits, notes payable—current portion and other current liabilities were classified as Level 2 of the fair value hierarchy.
 
Restricted cash and cash equivalents—long-term. At April 30, 2013 and July 31, 2012, the carrying amount of restricted cash and cash equivalents—long-term approximated fair value. The fair value was estimated based on the anticipated cash flows once the restrictions are removed, which was classified as Level 2 of the fair value hierarchy.
 
Other liabilities. At April 30, 2013 and July 31, 2012, the carrying amount of other liabilities approximated fair value. The fair value was estimated based on the Company’s assumptions, which was classified as Level 3 of the fair value hierarchy.
 
It is not practicable to estimate the fair value of the Company’s notes payable—long-term portion at April 30, 2013 and July 31, 2012 without incurring excessive cost. Notes payable—long-term portion included the following: (1) a term loan with a carrying amount of $6.7 million and $6.9 million (excluding the current portion) at April 30, 2013 and July 31, 2012, respectively, that bears interest at the rate of 5.6% per annum, and is payable in monthly installments of principal and interest of $0.1 million and a final installment of $6.4 million payable on September 1, 2015, which is secured by a mortgage on a building in Piscataway, New Jersey, and (2) a note payable with a carrying amount of nil and $22.8 million (excluding the current portion) at April 30, 2013 and July 31, 2012, respectively, that incurred interest at the rate of 8.9% per annum, provided, however, until March 31, 2013, the Company only paid interest at the rate of 6.9% per annum, the interest of 2.0% per annum that accrued was added to the principal balance (in an aggregate amount of $1.9 million), monthly payments of principal and interest of $0.2 million were scheduled to begin in April 2013 and a final payment of $20.4 million was due on April 1, 2020, which was secured by a mortgage on the building at 520 Broad Street, Newark, New Jersey. This note payable was repaid on May 1, 2013 (see Note 13).
 
 
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The Company’s investments-long-term at April 30, 2013 and July 31, 2012 included investments in the equity of certain privately held entities and other investments that are accounted for 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 $2.3 million and $1.1 million at April 30, 2013 and July 31, 2012, respectively, which the Company believes was not impaired.
 
Note 6—Equity
 
Changes in the components of equity were as follows:
 
   
Nine Months Ended
April 30, 2013
 
   
Attributable to
IDT Corporation
   
Noncontrolling Interests
   
Total
 
   
(in thousands)
 
Balance, July 31, 2012
  $ 102,230     $ 495     $ 102,725  
Dividends declared ($0.75 per share)
    (17,124           (17,124 )
Restricted Class B common stock purchased from employees
    (300           (300 )
Repurchases of Class B common stock through repurchase program
    (778           (778 )
Distributions to noncontrolling interests
          (1,545 )     (1,545 )
Purchases of stock of subsidiary
    (1,795 )     (9 )     (1,804 )
Sale of stock of subsidiary
    (58 )     203       145  
Stock-based compensation
    5,363       268       5,631  
Comprehensive income:
                       
Net income
    15,258       1,529       16,787  
Foreign currency translation adjustments
    1,428       (47 )     1,381  
                         
Comprehensive income
    16,686       1,482       18,168  
                         
Balance, April 30, 2013
  $ 104,224     $ 894     $ 105,118  

Dividend Payments
 
On October 16, 2012, the Company paid a cash dividend of $0.15 per share to stockholders of record of the Company’s Class A common stock and Class B common stock at the close of business on October 9, 2012. On November 13, 2012, the Company paid a special dividend of $0.60 per share to stockholders of record of the Company’s Class A common stock and Class B common stock as of the close of business on November 5, 2012. The aggregate dividends paid were $17.1 million. The Company suspended payment of its regular $0.15 per share quarterly dividends for the remainder of fiscal 2013.
 
Purchases of Stock of Subsidiary
 
In December 2012, a wholly-owned subsidiary of the Company purchased shares of the Company’s subsidiary, Fabrix T.V., Ltd. (“Fabrix”), for cash of $1.8 million. The shares were purchased from holders of noncontrolling interests in Fabrix representing 4.5% of the equity in Fabrix, which increased the Company’s ownership in Fabrix to 86.1% from 81.6%.
 
Sale of Stock of Subsidiary
 
On November 21, 2012, the Company’s subsidiary, Zedge Holdings, Inc. (“Zedge”), sold shares to Shaman II, L.P. for cash of $0.1 million, which increased Shaman II, L.P.’s ownership in Zedge to 11.17% from 11.1%. One of the limited partners in Shaman II, L.P. is a former employee of the Company.
 
Stock-Based Compensation
 
On September 24, 2012, the Company’s Board of Directors approved a grant of 10% of the equity of the Company’s subsidiary, Straight Path IP Group to Howard Jonas. These Straight Path IP Group shares vested immediately. The Company recorded stock-based compensation expense of $1.2 million in the nine months ended April 30, 2013 for the grant of these shares, based on the estimated fair value of the shares on the grant date.
 
Stock Repurchase Program
 
The Company has 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. In the nine months ended April 30, 2013, the Company repurchased 77,843 shares of Class B common stock for an aggregate purchase price of $0.8 million. There were no repurchases under the program in the nine months ended April 30, 2012. As of April 30, 2013, 5.1 million shares remained available for repurchase under the stock repurchase program.
 
 
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Note 7—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 restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.
 
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,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands)
 
Basic weighted-average number of shares
    20,905       21,041       20,847       20,633  
Effect of dilutive securities:
                               
Non-vested restricted Class B common stock
    1,455       1,043       1,331        
                                 
Diluted weighted-average number of shares
    22,360       22,084       22,178       20,633  

The following shares were excluded from the diluted earnings per share computations because their inclusion would have been anti-dilutive:
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands)
 
Stock options
    703       565       703       704  
Non-vested restricted Class B common stock
                      1,758  
                                 
Shares excluded from the calculation of diluted earnings per share
    703       565       703       2,462  

For the three months ended April 30, 2013 and 2012 and the nine months ended April 30, 2013, outstanding stock options for which the exercise price of the stock option was greater than the average market price of the Company’s stock during the period were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the nine months ended April 30, 2012, the diluted earnings per share equals basic earnings per share because the Company had a loss from continuing operations and the impact of the assumed exercise of stock options and assumed vesting of restricted stock would have been anti-dilutive.
 
Note 8—Business Segment Information
 
The Company has two reportable business segments, Telecom Platform Services and Consumer Phone Services, which comprise the IDT Telecom division. All other operating segments that are not reportable individually are included in All Other. The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
 
The Telecom Platform Services segment provides telecommunications services, including prepaid and rechargeable calling products and international long distance traffic termination, as well as various payment services. The Consumer Phone Services segment provides consumer local and long distance services in the United States. All Other includes (1) Zedge, which operates a service accessible online and through both an Android and iOS app that provides mobile game discovery and personalization content such as ringtones and wallpapers, (2) Fabrix, a software development company specializing in highly efficient cloud-based video processing, storage and delivery, (3) Straight Path Spectrum, which holds, leases and markets fixed wireless spectrum licenses, (4) Straight Path IP Group, which holds intellectual property primarily related to communications over the Internet and the licensing and other businesses related to this intellectual property, (5) the Company’s real estate holdings, and (6) other smaller businesses. Corporate costs include certain services, such as 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, investor relations, corporate insurance, corporate legal, 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.
 
 
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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 income (loss) from operations. 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
   
All Other
   
Corporate
   
Total
 
Three Months Ended April 30, 2013
                             
Revenues
  $ 388,939     $ 3,427     $ 4,855     $     $ 397,221  
Income (loss) from operations
    19,314       341       (1,555 )     (3,374 )     14,726  
                                         
Three Months Ended April 30, 2012
                                       
Revenues
  $ 372,102     $ 4,585     $ 3,032     $     $ 379,719  
(Loss) income from operations
    (125 )     977       4,330       (3,020 )     2,162  
                                         
Nine Months Ended April 30, 2013
                                       
Revenues
  $ 1,183,731     $ 11,156     $ 14,604     $     $ 1,209,491  
Income (loss) from operations
    38,404       1,377       (3,993 )     (10,581 )     25,207  
                                         
Nine Months Ended April 30, 2012
                                       
Revenues
  $ 1,098,755     $ 14,949     $ 8,241     $     $ 1,121,945  
(Loss) income from operations
    (961 )     3,186       3,185       (10,278 )     (4,868 )

Telecom Platform Services’ income from operations in the three and nine months ended April 30, 2013 included net gains of $9.6 million and $9.3 million, respectively, related to legal matters. Telecom Platform Services’ loss from operations in the three and nine months ended April 30, 2012 included an aggregate of $6.5 million and $6.7 million, respectively, for estimated losses from pending litigation. In addition, Telecom Platform Services’ loss from operations in the nine months ended April 30, 2012 included a loss of $11.0 million from the settlement of litigation with T-Mobile (see Note 3), offset by a $1.8 million gain from the Broadstripe, LLC settlement (see Note 3).
 
All Other’s loss from operations in the nine months ended April 30, 2013 included a gain of $0.2 million from the settlement of a claim. All Other’s income from operations in the three and nine months ended April 30, 2012 included a gain of $5.3 million from the sale of rights in wireless spectrum partitioned and/or disaggregated from eight spectrum licenses (see Note 3).
 
Note 9—Legal Proceedings
 
On February 15, 2011, a jury in the United States District Court, Eastern District of Texas awarded Alexsam, Inc. (“Alexsam”) $9.1 million in damages from the Company in an action alleging infringement of two patents related to the activation of phone and gift cards (incorporating bank identification numbers approved by the American Banking Association for use in a banking network) over a point-of-sale terminal. The judgment issued in August 2011 awarded Alexsam an aggregate of $10.1 million including damages and interest. Post-judgment interest continues to accrue at an annual rate of 0.11% on the $10.1 million awarded in the judgment. Notwithstanding confidence in the merits of its appeal, the Company has completed a design-around of certain of the card encoding schemes at issue in an attempt to avoid infringement of the Alexsam patents, and the Company does not expect that the jury’s decision will have a material impact on its future business operations. On September 1, 2011, Alexsam filed a related action seeking royalties for the products and systems previously found to infringe its patents to the extent they have been used since January 1, 2011. A bench trial was held on April 1-2, 2013. We await the Court’s decision. On October 28, 2011, the Company filed a notice of appeal and on November 1, 2011, Alexsam filed a notice of cross-appeal. On May 20, 2013, the Federal Circuit Court of Appeals ruled on behalf of the Company that it did not infringe the Alexsam patents.  The Court also affirmed that the Company was licensed to use Alexsam’s patents for activations of certain phone and gift cards. However, the Court denied the remainder of the appeal. The Court remanded the case to the District Court for a recalculation of damages. The Company estimates that the damages may be reduced by approximately 50% exclusive of interest. In the second and fourth quarters of fiscal 2012, the Company recorded an aggregate of $10.8 million in expenses related to this matter.
 
On July 2, 2009, Southwestern Bell Telephone Company and nine of its affiliates (collectively “Southwestern Bell”), each of which is a local exchange carrier, filed a complaint in the United States District Court for the Northern District of Texas seeking an accounting as well as declaratory, injunctive and monetary relief from the Company. The complaint alleged that the Company failed to pay “switched access service” charges for calls made by consumers using the Company’s prepaid calling cards. The complaint alleges causes of action for (i) violation of federal tariffs, (ii) violation of state tariffs, and (iii) unjust enrichment. On October 22, 2012, the Company and Southwestern Bell entered into a Confidential Settlement Agreement to fully and finally resolve the litigation and the underlying claim and matter in dispute.
 
 
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Aerotel, Ltd. (“Aerotel”) and the Company are parties to a Settlement Agreement dated June 29, 2009 (the “2009 Settlement Agreement”). The 2009 Settlement Agreement resulted from a lawsuit filed by Aerotel against the Company in 2008, which was a by-product of a complaint originally filed by Aerotel and its affiliates against the Company in 2003. The initial 2003 claim was settled in 2007 with the Company’s agreement to pay Aerotel $15 million in cash, and 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. On October 27, 2010, Aerotel served the Company with a Notice of Arbitration and Statement of Claim referring disputes related to the 2009 Settlement Agreement to the CPR Institute for Dispute Resolution. The Statement of Claim alleged breach of contract, anticipatory breach, breach of covenant of good faith and fair dealing, common law fraud, negligence and deceptive business practices and sought damages of at least $25 million and attorneys’ fees. The arbitration panel, in its Interim Award, did not find recoverable breaches on many of Aerotel’s claims, and did not award restitution to Aerotel. The panel found that the Company is required to compensate Aerotel for lost profits on a portion of the sales of international calling cards it was to make under the 2009 Settlement Agreement. The parties submitted updated damages calculations based on various requests from the panel. On March 15, 2013, the panel issued its Final Award, and determined that Aerotel sustained damages, inclusive of interest at 9% per annum through March 15, 2013, in the total amount of approximately $5.4 million. On April 8, 2013, Aerotel filed a Petition for Judgment Vacating the Arbitration Awards in the United States District Court, Southern District of New York along with a Motion supporting its Petition to Vacate the Arbitration Awards. On May 15, 2013, the Company filed its opposition to the Motion to Vacate the Arbitration Awards. Aerotel filed its reply on June 5, 2013. 
 
The Company is the exclusive licensee of a patent related to a method and process used in prepaid calling cards that was invented by Shmuel Fromer. The Company has been attempting to enforce this patent in Germany, and had succeeded, prevailing in infringement cases against certain calling card providers, including Lycatel (Ireland) Limited and Lycatel Services Limited, and Mox Telecom AG. On February 21, 2012, a nullity hearing (effectively judging the validity of the patent) with respect to the patent, took place before the German Federal Court of Justice in Karlsruhe, between Lycatel Services Limited as claimant, Mox Telecom AG as intervenor on the side of claimant, and Mr. Fromer, as defendant. During this hearing, the court nullified claims 1, 2, 3, 5 and 6 of the patent. The Court also ordered the defendant to pay costs and fees in respect of all of the nullity proceedings involving Lycatel and Mox. Except for the amount of fees and costs which may be claimed against the Company that are based on applicable statutes, the outcome of this matter is uncertain, and, as such, the Company is not able to make an assessment of the final result and its impact on the Company. Upon enforcement of the judgments in these cases, the Company was required to transfer security deposits to the court. The security deposit for each of the Lycatel and Mox cases was €250,000 ($0.3 million at April 30, 2013) and €1.5 million ($2.0 million at April 30, 2013) respectively. The Company requested release of both security deposits. The court approved the release of the Lycatel security deposit to the Company. Mox is attempting to block the release of the Mox security deposit. The Company believes that it should succeed in retrieving the majority of the Mox deposit.
 
As of April 30, 2013, the Company had an aggregate of $15.4 million accrued for the Alexsam, Southwestern Bell, Aerotel and Lycatel/Mox matters (see Note 3). As of April 30, 2013, the Company’s reasonably possible liability above the aggregate amount that had been accrued for these matters was $8.5 million.
 
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. (collectively “Tyco”). The Company alleged that Tyco breached a settlement agreement that it had entered into with the Company to resolve certain disputes and civil actions among the parties. The Company alleged that Tyco 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 Tyco was deploying at that time. In June 2004, Tyco asserted several counterclaims against the Company, alleging that the Company breached the settlement agreement and is liable for damages for allegedly refusing to accept Tyco’s offer regarding the Wavelengths referenced in the settlement agreement and for making a public statement that Tyco failed to provide the Company with the use of its Wavelengths. On August 19, 2008, the Appellate Division of the State of New York, First Department, granted summary judgment in favor of Tyco dismissing the complaint and remanded the matter to the Supreme Court for further proceedings. On October 22, 2009, the New York Court of Appeals issued an Order denying the Company’s appeal and affirming the Appellate Division’s order. On or about November 17, 2009, the Company demanded that Tyco comply with its obligations under the settlement agreement. After further discussions and meetings between the parties regarding Tyco’s obligations under the settlement agreement, including its obligation to provide the use of the Wavelengths for fifteen years in a manner fully consistent with that described in the settlement agreement, the Company filed a complaint on November 24, 2010 in the Supreme Court of the State of New York, County of New York, against Tyco based upon the failure to comply with the obligations under the settlement agreement, to negotiate the terms of an indefeasible right to use the Wavelengths in good faith, and to provide the Company with the Wavelengths. The complaint alleges causes of action for breach of contract and breach of duty to negotiate in good faith. On January 6, 2011, Tyco filed a motion to dismiss the complaint, which was granted. On July 22, 2011, the Company filed a notice of appeal. After briefing was completed, oral argument was held on April 2, 2012. On December 27, 2012, the Appellate Division issued an opinion and order reversing the order of the Supreme Court which granted Tyco’s motion to dismiss the Company’s complaint. On January 31, 2013, Tyco filed a motion for reargument or, in the alternative, leave to appeal to the Court of Appeals, which the Company opposed. On February 8, 2013, Tyco filed an answer with a counterclaim. On May 21, 2013, the Appellate Division denied Tyco’s request for reargument but granted its request for leave to appeal to the Court of Appeals.
 
 
14

 
 
On April 1, 2004, D. Michael Jewett, a former employee with whom the Company entered into a confidential settlement agreement in November 2010, sent a copy of the complaint he had filed against the Company to the United States Attorney’s Office. In the complaint, Jewett had 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. In March 2013, the Company was informed by the DOJ and SEC that they closed their investigations related to this matter.
 
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, none of the other legal proceedings to which the Company is a party will have a material adverse effect on the Company’s results of operations, cash flows or financial condition.
 
Note 10—Line of Credit Facility
 
Effective July 30, 2012, the Company’s subsidiary, IDT Telecom, Inc., entered into a credit agreement, dated July 12, 2012, with TD Bank, N.A. for a line of credit facility for up to a maximum principal amount of $25.0 million. IDT Telecom may use the proceeds to finance working capital requirements, acquisitions and for other general corporate purposes. The line of credit facility is secured by primarily all of IDT Telecom’s assets. The principal outstanding bears interest per annum, at the option of IDT Telecom, at either (a) the U.S. Prime Rate less 125 basis points, or (b) the LIBOR rate adjusted by the Regulation D maximum reserve requirement plus 150 basis points. Interest is payable monthly and all outstanding principal and any accrued and unpaid interest is due on the maturity date of July 11, 2014. IDT Telecom pays a quarterly unused commitment fee of 0.375% per annum on the average daily balance of the unused portion of the $25.0 million commitment. IDT Telecom is required to comply with various affirmative and negative covenants as well as maintain certain financial targets and ratios during the term of the line of credit, including IDT Telecom may not pay any dividend on its capital stock and IDT Telecom’s aggregate loans and advances to affiliates or subsidiaries may not exceed $70.0 million. In March 2013, IDT Telecom borrowed $8.0 million, which incurred interest at LIBOR plus 150 basis points, or 1.7037% per annum. In April 2013, IDT Telecom repaid the $8.0 million. At April 30, 2013, there were no amounts borrowed or utilized for letters of credit under the line of credit, IDT Telecom was in compliance with all of the covenants, and IDT Telecom’s aggregate loans and advances to affiliates and subsidiaries was $54.5 million.
 
Note 11—Commitments and Contingencies
 
Purchase Commitments
 
The Company had purchase commitments of $1.3 million as of April 30, 2013.
 
Letters of Credit
 
As of April 30, 2013, the Company had letters of credit outstanding totaling $6.2 million primarily for collateral to secure mortgage repayments and a settlement agreement payment. The letters of credit outstanding as of April 30, 2013 expire as follows: $3.4 million in the twelve month period ending April 30, 2014 and $2.8 million in August 2015.
 
Surety and Performance Bonds
 
The Company has a surety bond outstanding related to the $10.1 million Alexsam judgment (see Note 9). In addition, IDT Payment Services and IDT Telecom have performance bonds issued through third parties for the benefit of various states in order to comply with the states’ financial requirements for money remittance licenses and telecommunications resellers, respectively. At April 30, 2013, the Company had aggregate surety and performance bonds of $22.1 million outstanding.
 
Customer Deposits
 
As of April 30, 2013 and July 31, 2012, “Customer deposits” in the Company’s consolidated balance sheets included refundable customer deposits of $25.2 million and $10.5 million, respectively, related to IDT Financial Services, the Company’s Gibraltar-based bank.
 
 
15

 
 
Restricted Cash and Cash Equivalents
 
Restricted cash and cash equivalents consist of the following:
 
   
April 30,
2013
   
July 31,
2012
 
   
(in thousands)
 
Restricted cash and cash equivalents-short-term
           
Letters of credit related
  $ 3,495     $ 1,430  
IDT Financial Services customer deposits
    25,294       11,154  
Other
    269       52  
                 
Total short-term
    29,058       12,636  
Restricted cash and cash equivalents-long-term
               
Letters of credit related
    2,767       2,763  
IDT Financial Services related
    6,704       6,703  
                 
Total long-term
    9,471       9,466  
                 
Total restricted cash and cash equivalents
  $ 38,529     $ 22,102  
 
Note 12—Other Income (Expense), Net
 
Other income (expense), net consists of the following:

   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in thousands)
 
Foreign currency transaction gains (losses)
  $ 1,521     $ (2,372 )   $ 3,566     $ (1,901 )
Gain on investments
    960       1,827       1,565       1,037  
Other
    (48 )     (19 )     2       60  
                                 
Total other income (expense), net
  $ 2,433     $ (564 )   $ 5,133     $ (804 )

Note 13—520 Broad Street Building and Note Payable
 
At April 30, 2013, the carrying value of the land, building and improvements that the Company owns at 520 Broad Street, Newark, New Jersey was $42.4 million. As a result of events and changes in circumstances that may result in projected cash flows to be derived from these assets to differ from previous assumptions, the Company began an evaluation of the recoverability of their carrying value. The Company is currently in the process of estimating the projected undiscounted cash flows to be derived from the land, building and improvements. Since the Company could not reasonably estimate the fair value of the land, building and improvements, the Company did not make any adjustments to their carrying value in the third quarter of fiscal 2013. The Company expects to complete its valuation and recoverability analysis during the fourth quarter of fiscal 2013, and, if and to the extent an impairment is determined to have occurred, it will, accordingly, adjust the carrying value of these assets to their fair value at such time.
 
On April 30, 2013, the Company and the holder of the note payable secured by a mortgage on the 520 Broad Street building (the “Lender”) entered into an agreement to settle all disputes between the Company and Lender. In connection with this agreement, on May 1, 2013, the Company paid the Lender $21.1 million and the Lender released the Company from the note and discharged the mortgage. At April 30, 2013, the note payable balance of $21.3 million, which was net of reserve and escrow balances of $0.6 million that the Company and the Lender agreed to apply to the amount owed on the note, was classified as “Notes payable—current portion” in the accompanying consolidated balance sheet. In addition, in the fourth quarter of fiscal 2013, the Company recognized a gain of $0.2 million on the modification and early termination of the note payable.
 
Note 14—Recently Issued Accounting Standards Not Yet Adopted
 
In December 2011, an accounting standard update was issued to enhance disclosures and provide converged disclosures in U.S. GAAP and International Financial Reporting Standards (“IFRS”) about derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities will be required to provide both net and gross information for those assets and liabilities in order to enhance comparability between entities that prepare their financial statements on the basis of U.S. GAAP and entities that prepare their financial statements on the basis of IFRS. The Company is required to adopt this standard update on August 1, 2013. The Company is evaluating the impact that this standard update will have on its consolidated financial statements.
 
In July 2012, an accounting standard update was issued to reduce the complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. Prior to the adoption of this update, an entity is required to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. The Company is required to adopt this standard update on August 1, 2013. The adoption of this standard update will not impact the Company’s financial position, results of operations or cash flows.
 
 
16

 
 
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 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, 2012, as filed with the U.S. Securities and Exchange Commission (or SEC).
 
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, 2012 as supplemented by the information contained in Item 1A to Part II of this Quarterly Report. 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, 2012.
 
Overview
 
We are a multinational holding company with operations primarily in the telecommunications industry. We have two reportable business segments, Telecom Platform Services and Consumer Phone Services, which comprise our IDT Telecom division. Telecom Platform Services provides telecommunications services, including prepaid and rechargeable calling products and international long distance traffic termination, as well as various payment services. Consumer Phone Services provides consumer local and long distance services in the United States. All other operating segments that are not reportable individually are included in All Other. All Other includes (1) Zedge Holdings, Inc., or Zedge, which operates a service accessible online and through both an Android and iOS app that provides mobile game discovery and personalization content such as ringtones and wallpapers, (2) Fabrix T.V., Ltd., or Fabrix, a software development company specializing in highly efficient cloud-based video processing, storage and delivery, (3) Straight Path Spectrum, Inc. (formerly IDT Spectrum, Inc.), or Straight Path Spectrum, which holds, leases ands markets fixed wireless spectrum licenses, (4) Straight Path IP Group, Inc. (formerly Innovative Communications Technologies, Inc.) or Straight Path IP Group, which holds intellectual property primarily related to communications over the Internet and the licensing and other businesses related to this intellectual property, (5) our real estate holdings, and (6) other smaller businesses.
 
On May 6, 2013, we announced our intention to spin-off our wholly-owned subsidiary Straight Path Communications Inc., or Straight Path, to our stockholders. Straight Path will hold our interests in Straight Path Spectrum and Straight Path IP Group. Also on May 6, 2013, Straight Path filed a Form 10 registration statement including an initial Information Statement to be sent to our stockholders, with the SEC. The intent is that Straight Path will be spun-off to our stockholders as a newly publicly traded company by way of a pro rata distribution of Straight Path’s Class A common stock and Class B common stock to our stockholders. In the distribution, our stockholders will receive one share of Straight Path Class A common stock for every five shares of our Class A common stock and one share of Straight Path Class B common stock for every five shares of our Class B common stock held on the record date for the spin-off. In connection with the planned spin-off, we expect to transfer cash to Straight Path prior to the spin-off such that Straight Path will have approximately $15 million in cash at the time of the spin-off. Completion of the spin-off is subject to final approval by our Board of Directors, and effectiveness of the Form 10 registration statement filed with the SEC. We expect to receive a favorable opinion as to the spin-off’s tax-free status prior to consummation. 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.
 
IDT Telecom
 
Since our inception, we have derived the majority of our revenues and operating expenses from IDT Telecom’s businesses. IDT Telecom’s revenues represented 98.8% and 99.3% of our total revenues from continuing operations in the nine months ended April 30, 2013 and 2012, respectively.
 
 
17

 
 
Telecom Platform Services, which represented 99.1% and 98.7% of IDT Telecom’s total revenues in the nine months ended April 30, 2013 and 2012, respectively, markets and distributes multiple communications and payment services across four business categories, including:
 
  
Retail Communications provides international long-distance calling products primarily to immigrant communities worldwide, with core markets in the United States and Europe. These products include our flagship Boss Revolution Pin-less product (an international calling service sold through the Boss Revolution payment platform) as well as many of our established traditional disposable calling card brands including Boss, La Leyenda, and Feliz, and mobile apps, including PennyTalk.
 
 
Wholesale Termination Services is a global telecom carrier, terminating international long distance calls around the world for Tier 1 fixed line and mobile network operators as well as other aggregators through our network of 800-plus carrier interconnects.
 
 
Payment Services markets payment offerings such as international mobile top-up, or IMTU, as well as gift cards in both the United States and Europe. IMTU enables customers to purchase airtime for a prepaid mobile telephone in another country. IMTU is available in both traditional cards as well as on our Boss Revolution payment platform. Payment Services also includes reloadable debit cards and Bank Identification Number (BIN) Sponsorship services offered in Europe by IDT Financial Services through our Gibraltar-based bank.
 
 
Hosted Platform Solutions provides customized communications services that leverage our proprietary networks, platforms and/or technology to cable companies and other operators. The majority of Hosted Platform Solutions’ revenue is generated by our cable telephony business which is in “harvest mode” – maximizing revenues from current customers while maintaining expenses at the minimum levels essential to operate the business.
 
In fiscal 2013, our subsidiary, IDT Payment Services, applied for money remittance licenses in most states in the United States. To date, IDT Payment Services received approvals to start transacting in over thirty states. As a licensed money transmitter, IDT Payment Services will be regulated by the states where it holds licenses and by federal law.
 
Over the past few years, we have experienced a continued shift in demand industry-wide, away from traditional calling cards and into wireless products and Internet protocol (or IP)-based products, which, among other things, contributes to the gradual erosion of our pricing power. The continued growth of these wireless and IP-based services has adversely affected the sales of our traditional disposable prepaid calling card products as customers migrate from using cards to using these alternative services. We expect pricing of wireless and IP-based services to continue to decrease, which may result in increased substitution and increased pricing pressure on our prepaid calling card products’ sales and margins.
 
To combat this trend, we have introduced in recent years new sources of revenue, such as Boss Revolution Pin-less and IMTU that have now largely replaced revenues from our traditional disposable calling cards. Boss Revolution Pin-less allows users to call their families and friends overseas without the need to enter a personal identification number. IMTU appeals to residents of developed countries such as the United States who regularly communicate with or financially support friends or family members in a developing country. The addition of Boss Revolution Pin-less and IMTU represent successful efforts to leverage our existing capabilities and distribution. In general, Boss Revolution Pin-less and IMTU command lower gross margins when compared to our more established, traditional calling cards. There can be no assurance that we will continue to grow our Boss Revolution Pin-less and IMTU sales, or that we will be able to generate new sources of revenue to offset the continuing decline in our traditional disposable calling card revenues.
 
The wholesale carrier industry has numerous players competing for the same customers, primarily on the basis of price, products and quality of service. In our Wholesale Termination Services business, we have generally had to pass along all or most of our per-minute cost savings to our customers in the form of lower prices.
 
Discontinued Operations
 
Genie Energy Ltd.
 
On October 28, 2011, we completed a pro rata distribution of the common stock of our subsidiary, Genie Energy Ltd., or Genie, to our stockholders of record as of the close of business on October 21, 2011. At the time of the Genie spin-off, Genie owned 99.3% of Genie Energy International Corporation, which owned 100% of IDT Energy and 92% of Genie Oil and Gas, Inc. As of October 28, 2011, each of our stockholders received one share of Genie Class A common stock for every share of our Class A common stock and one share of Genie Class B common stock for every share of our Class B common stock held of record as of the close of business on October 21, 2011. Genie 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.
 
 
18

 
 
We received a ruling from the Internal Revenue Service substantially to the effect that, for U.S. federal income tax purposes, the distribution of shares of Genie common stock will qualify as tax-free for Genie, us and our stockholders under Section 355 of the Internal Revenue Code of 1986. In addition to obtaining the IRS ruling, we received an opinion from PricewaterhouseCoopers LLP on the three requirements for a tax-free distribution that are not addressed in the IRS ruling. Specifically, the opinion concludes that the distribution (i) should satisfy the business purpose requirement of the Internal Revenue Code for a tax-free distribution, (ii) should not be viewed as being used principally as a device for the distribution of earnings and profits of the distributing corporation or the controlled corporation or both, and (iii) should not be viewed as part of a plan (or series of related transactions) pursuant to which one or more persons will acquire directly or indirectly stock representing a 50 percent or greater interest in the distributing corporation or controlled corporation within the meaning of the relevant section of the Internal Revenue Code.
 
In connection with the Genie spin-off, we funded Genie with a total of $106.0 million in aggregate cash and cash equivalents, including restricted cash.
 
We entered into various agreements with Genie prior to the spin-off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with Genie after the spin-off, and a Transition Services Agreement, which provides for certain services to be performed by us and Genie to facilitate Genie’s transition into a separate publicly-traded company. These agreements provide for, among other things, (1) the allocation between us and Genie of employee benefits, taxes and other liabilities and obligations attributable to periods prior to the spin-off, (2) transitional services to be provided by us relating to human resources and employee benefits administration, (3) the allocation of responsibilities relating to employee compensation and benefit plans and programs and other related matters, (4) finance, accounting, tax, internal audit, facilities, investor relations and legal services to be provided by us to Genie following the spin-off and (5) specified administrative services to be provided by Genie to certain of our foreign subsidiaries. In addition, we entered into a Tax Separation Agreement with Genie, which sets forth the responsibilities of us and Genie with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the spin-off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods.
 
Our selling, general and administrative expenses were reduced by $1.0 million and $0.8 million in the three months ended April 30, 2013 and 2012, respectively, and $3.2 million and $1.8 million in the nine months ended April 30, 2013 and 2012, respectively, as a result of the fees we charged to Genie for services provided pursuant to the Transition Services Agreement, net of the amounts charged by Genie to certain of our foreign subsidiaries. At April 30, 2013 and July 31, 2012, other current assets reported in our consolidated balance sheet included receivables from Genie of $0.7 million.
 
IDT Entertainment
 
In connection with the sale of IDT Entertainment to Liberty Media Corporation in the first quarter of fiscal 2007, we were eligible to receive additional consideration from Liberty Media based upon any appreciation in the value of IDT Entertainment over the five-year period that ended in August 2011, however, we may have been required to pay Liberty Media up to $3.5 million if the value of IDT Entertainment did not exceed a certain amount by August 2011. In September 2011, we and Liberty Media executed an agreement to settle and resolve all claims related to the additional consideration and certain other disputes and claims. Liberty Media paid us $2.0 million in September 2011 in consideration for the settlement and related releases, which is included in “Income on sale of discontinued operations” in the accompanying consolidated statement of operations.
 
Summary Financial Data of Discontinued Operations
 
Revenues, income before income taxes and net income of Genie and subsidiaries, which are included in discontinued operations, were as follows:
 
   
Three months ended
April 30,
   
Nine months ended
April 30,
 
   
2013
   
2012
   
2013
   
2012
 
   
(in millions)
 
Revenues
  $     $     $     $ 45.8  
                                 
Income before income taxes
  $     $     $     $ 2.6  
                                 
Net income
  $     $     $     $ 1.0  

 
19

 
 
520 Broad Street Building and Note Payable
 
At April 30, 2013, the carrying value of the land, building and improvements that we own at 520 Broad Street, Newark, New Jersey was $42.4 million. As a result of events and changes in circumstances that may result in projected cash flows to be derived from these assets to differ from previous assumptions, we began an evaluation of the recoverability of their carrying value. We are currently in the process of estimating the projected undiscounted cash flows to be derived from the land, building and improvements. Since we could not reasonably estimate the fair value of the land, building and improvements, we did not make any adjustments to their carrying value in the third quarter of fiscal 2013. We expect to complete this valuation and recoverability analysis during the fourth quarter of fiscal 2013, and, if and to the extent an impairment is determined to have occurred, we will, accordingly, adjust the carrying value of these assets to their fair value at such time.
 
On April 30, 2013, we and the holder of the note payable secured by a mortgage on the 520 Broad Street building, or the Lender, entered into an agreement to settle all disputes between us and the Lender. In connection with this agreement, on May 1, 2013, we paid the Lender $21.1 million and the Lender released us from the note and discharged the mortgage. At April 30, 2013, the note payable balance of $21.3 million, which was net of reserve and escrow balances of $0.6 million that we and the Lender agreed to apply to the amount owed on the note, was classified as “Notes payable—current portion” in the accompanying consolidated balance sheet. In addition, in the fourth quarter of fiscal 2013, we recognized a gain of $0.2 million on the modification and early termination of the note payable.
 
Critical Accounting Policies
 
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2012. 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, IDT Telecom direct cost of revenues—disputed amounts, 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 2012.
 
Recently Issued Accounting Standards Not Yet Adopted
 
In December 2011, an accounting standard update was issued to enhance disclosures and provide converged disclosures in U.S. GAAP and International Financial Reporting Standards, or IFRS, about derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities will be required to provide both net and gross information for those assets and liabilities in order to enhance comparability between entities that prepare their financial statements on the basis of U.S. GAAP and entities that prepare their financial statements on the basis of IFRS. We are required to adopt this standard update on August 1, 2013. We are evaluating the impact that this standard update will have on our consolidated financial statements. 
 
In July 2012, an accounting standard update was issued to reduce the complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. Prior to the adoption of this update, an entity is required to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. We are required to adopt this standard update on August 1, 2013. The adoption of this standard update will not impact our financial position, results of operations or cash flows.
 
 
20

 
 
Results of Operations
 
Three and Nine Months Ended April 30, 2013 Compared to Three and Nine Months Ended April 30, 2012
 
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.
 
IDT Telecom—Telecom Platform Services and Consumer Phone Services Segments

   
Three months ended
April 30,
   
Change
   
Nine months ended
April 30,
   
Change
 
   
2013
   
2012
   
$
   
%
   
2013
   
2012
   
$
   
%
 
   
(in millions)
 
Revenues
                                               
Telecom Platform Services
  $ 388.9     $ 372.1     $ 16.8       4.5 %   $ 1,183.7     $ 1,098.8     $ 84.9       7.7 %
Consumer Phone Services
    3.4       4.6       (1.2 )     (25.3 )     11.2       14.9       (3.7 )     (25.4 )
                                                                 
Total revenues
  $ 392.3     $ 376.7     $ 15.6       4.2 %   $ 1,194.9     $ 1,113.7     $ 81.2       7.3 %

Revenues. IDT Telecom revenues increased in the three and nine months ended April 30, 2013 compared to the similar periods in fiscal 2012 due to an increase in Telecom Platform Services revenues, which more than offset a decline in Consumer Phone Services revenues. As a percentage of IDT Telecom’s total revenues, Telecom Platform Services revenues increased from 98.7% in the nine months ended April 30, 2012 to 99.1% in the nine months ended April 30, 2013, and Consumer Phone Services revenues decreased from 1.3% in the nine months ended April 30, 2012 to 0.9% in the nine months ended April 30, 2013.
 
Telecom Platform Services’ revenues, minutes of use and average revenue per minute for the three and nine months ended April 30, 2013 and 2012 consisted of the following:

   
Three months ended
April 30,
   
Change
   
Nine months ended
April 30,
   
Change
 
   
2013
   
2012
   
$/#
   
%
   
2013
   
2012
   
$/#
   
%
 
   
(in millions, except revenue per minute)
 
Telecom Platform Services Revenues
                                               
Retail Communications
  $ 165.4     $ 138.9     $ 26.5       19.1 %   $ 480.1     $ 403.8     $ 76.3       18.9 %
Wholesale Termination Services
    159.3       179.8       (20.5 )     (11.4 )     523.0       540.8       (17.8 )     (3.3 )
Payment Services
    51.3       39.4       11.9       30.2       141.7       110.9       30.8       27.8  
Hosted Platform Solutions
    12.9       14.0       (1.1 )     (7.4 )     38.9       43.3       (4.4 )     (10.1 )
                                                                 
Total Telecom Platform Services revenues
  $ 388.9     $ 372.1     $ 16.8       4.5 %   $ 1,183.7     $ 1,098.8     $ 84.9       7.7 %
                                                                 
Minutes of use
                                                               
Retail Communications
    2,329       2,089       240       11.5 %     7,011       6,143       868       14.1 %
Wholesale Termination Services
    5,291       5,518       (227 )     (4.1 )     17,658       15,605       2,053       13.2  
Hosted Platform Solutions
    217       260       (43 )     (16.7 )     689       832       (143 )     (17.2 )
                                                                 
Total minutes of use
    7,837       7,867       (30 )     (0.4 )%     25,358       22,580       2,778       12.3 %
                                                                 
Average revenue per minute
                                                               
Retail Communications
  $ 0.0710     $ 0.0665     $ 0.0045       6.8 %   $ 0.0685     $ 0.0658     $ 0.0027       4.2 %
Wholesale Termination Services
    0.0301       0.0326       (0.0025 )     (7.6 )     0.0296       0.0347       (0.0051 )     (14.5 )

Retail Communications revenue (40.5% and 36.8% of Telecom Platform Services’ revenue in the nine months ended April 30, 2013 and 2012, respectively) grew 19.1% and 18.9% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012. The growth was led by penetration and acceptance of Boss Revolution within our U.S. retail distribution network, partially offset by continued declines in sales of traditional disposable calling cards and retail sales in Europe. We launched the Boss Revolution payment platform in the United Kingdom and Spain during fiscal 2012, and in the first half of fiscal 2013, it was launched in Germany, Hong Kong, Singapore and Australia.
 
Wholesale Termination Services revenue (44.2% and 49.2% of Telecom Platform Services’ revenue in the nine months ended April 30, 2013 and 2012, respectively) decreased 11.4% and 3.3% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012. The decrease was the result of an industry-wide increase in termination rates to certain key destinations which resulted in a decline in minutes of use and revenues as well as direct cost of revenues.
 
 
21

 
 
Payment Services revenue (12.0% and 10.1% of Telecom Platform Services’ revenue in the nine months ended April 30, 2013 and 2012, respectively) grew 30.2% and 27.8% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012. The increase was driven by the success of our IMTU offerings. Future growth will be, in large part, contingent upon our ability to enter into new IMTU partnerships with wireless providers, as well as continued growth of IMTU revenue and the introduction of new payment offerings through the Boss Revolution payment platform. In the third quarter of fiscal 2013, we soft-launched domestic bill payment services and a prepaid virtual Visa offering, and we expect to begin offering international money remittance services on a limited basis in the fourth quarter of fiscal 2013.
 
Hosted Platform Solutions revenue (3.3% and 3.9% of Telecom Platform Services’ revenue in the nine months ended April 30, 2013 and 2012, respectively) declined 7.4% and 10.1% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012. The decline was partially due to a decrease in revenue from our cable telephony business which is in harvest mode. The decline was also due to decreases in revenues from call shops outside the U.S., which decreased due to price competition and migration to alternative wireless and IP-based services.
 
Total minutes of use for Telecom Platform Services decreased 0.4% and increased 12.3% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012. 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 insignificant. Within Telecom Platform Services, minutes of use relating to Wholesale Termination Services decreased 4.1% and increased 13.2% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012. The decrease in the three months ended April 30, 2013 compared to the similar period in fiscal 2012 was the result of an industry-wide increase in termination rates to certain key destinations. The increase in the nine months ended April 30, 2013 compared to the similar period in fiscal 2012 was the result of significant increases in the first half of fiscal 2013 from our web-based prepaid termination service as well as from wholesale telecom. Minutes of use from Retail Communications increased 11.5% and 14.1% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012, which was driven by the volume growth in the U.S. and Asia, which more than offset the decrease in minutes of use in Europe and South America. Hosted Platform Solutions minutes of use decreased 16.7% and 17.2% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012, primarily as a result of the decline in minutes of use from managed services, call shops and cable telephony customers. In general, since our Hosted Platform Solutions business’ revenues and cash flows are driven far more by the number of existing subscribers in the form of a per-subscriber fee rather than by subscriber minutes of use, we do not view Hosted Platform Solutions minutes of use as a very significant metric.
 
Consumer Phone Services revenues declined 25.3% and 25.4% in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012 as we continued to operate the business in harvest mode. 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 in the operating model for this business. The customer base for our bundled, unlimited local and long distance services business was approximately 8,400 as of April 30, 2013 compared to 11,100 as of April 30, 2012. 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 38,000 as of April 30, 2013 compared to 47,900 as of April 30, 2012. We anticipate that Consumer Phone Services’ customer base and revenues will continue to decline.
 
   
Three months ended
April 30,
   
Change
   
Nine months ended
April 30,
   
Change
 
   
2013
   
2012
   
$
   
%
   
2013
   
2012
    $    
%
 
   
(in millions)
 
Direct cost of revenues
                                               
Telecom Platform Services
  $ 329.1     $ 317.3     $ 11.8       3.7 %   $ 1,004.2     $ 937.3     $ 66.9       7.2 %
Consumer Phone Services
    1.5       2.0       (0.5 )     (25.4 )     4.9       6.7       (1.8 )     (27.1 )
                                                                 
Total direct cost of revenues
  $ 330.6     $ 319.3     $ 11.3       3.6 %   $ 1,009.1     $ 944.0     $ 65.1       6.9 %
 
   
Three months ended April 30,
   
Change
   
Nine months ended April 30,
   
Change
 
   
2013
   
2012
       
2013
   
2012
     
Direct cost of revenues as a percentage of revenues
                                   
Telecom Platform Services
    84.6 %     85.3 %     (0.7 )%     84.8 %     85.3 %     (0.5 )%
Consumer Phone Services
    44.4       44.5       (0.1 )     44.0       45.1       (1.1 )
                                                 
Total
    84.3 %     84.8 %     (0.5 )%     84.5 %     84.8 %     (0.3 )%
 
Direct Cost of Revenues and Direct Cost of Revenues as a percentage of Revenues. Direct cost of revenues in Telecom Platform Services increased in the three and nine months ended April 30, 2013 compared to the similar periods in fiscal 2012 primarily as a result of increases in the direct cost of revenues in Retail Communications and Payment Services, partially offset by a decrease in Wholesale Termination Services direct cost of revenues. These increases and decrease trended with the increases in Retail Communications and Payment Services revenues and the decrease in Wholesale Termination Services revenues. Direct cost of revenues as a percentage of revenues decreased 50 basis points and 30 basis points in the three and nine months ended April 30, 2013, respectively, compared to the similar periods in fiscal 2012, which primarily reflects the growth of Retail Communications revenue compared to the decline in Wholesale Termination Services revenue, resulting in a positive revenue mix shift.
 
 
22

 
 
Direct cost of revenues in our Consumer Phone Services segment decreased in the three and nine months ended April 30, 2013 compared to the similar periods in fiscal 2012 primarily as a result of the declining customer base.

   
Three months ended
April 30,
   
Change
   
Nine months ended
April 30,
   
Change
 
   
2013
   
2012
   
$
    %    
2013
   
2012
   
$
   
%
 
   
(in millions)
 
Selling, general and administrative expenses
                                               
Telecom Platform Services
  $ 46.8     $ 45.0     $ 1.8       4.2 %   $ 141.3     $ 135.5     $ 5.8       4.3 %
Consumer Phone Services
    1.6       1.6             (0.2 )     4.9       5.0       (0.1 )     (3.0 )
                                                                 
Total selling, general and administrative expenses
  $ 48.4     $ 46.6     $ 1.8       4.0 %   $ 146.2     $ 140.5     $ 5.7       4.0 %

Selling, General and Administrative. The increase in selling, general and administrative expenses in our Telecom Platform Services segment in the three and nine months ended April 30, 2013 compared to the similar periods in fiscal 2012 was partially due to increases in employee compensation. We are continuing to expand our retail direct sales force in the U.S., which results in more control over our product distribution and enhances our relationships with retailers. We expect to continue to add to the direct sales force in the fourth quarter of fiscal 2013, which will likely somewhat further increase our selling, general and administrative expenses.
 
The increase in selling, general and administrative expenses in our Telecom Platform Services segment was also due to the increase in our variable costs, as our revenue grew as well. Variable selling, general and administrative expenses include costs such as third-party transaction processing, internal sales commissions and bad debt that closely track top-line performance. In particular, third-party transaction processing costs have increased in direct proportion to the rapid growth of sales on the Boss Revolution payment platform since many of the retailers on the Boss Revolution payment platform use credit cards to pay us for their purchases. We intend to compliment the use of credit cards with ACH transfers in order to reduce these costs. Internal sales commissions have grown as a direct result of our effort to grow and strengthen our retail direct sales force in the U.S. In addition, an increase in external legal fees contributed to the increase in selling, general and administrative expenses in our Telecom Platform Services segment in the nine months ended April 30, 2013 compared to the similar period in fiscal 2012. These increases were partially offset by decreases in marketing expenses in the three and nine months ended April 30, 2013 compared to the similar periods in fiscal 2012.
 
As a percentage of Telecom Platform Services’ revenue, Telecom Platform Services’ selling, general and administrative expenses decreased to 12.0% from 12.1% in the three months ended April 30, 2013 and 2012, respectively, and decreased to 11.9% from 12.3% in the nine months ended April 30, 2013 and 2012, respectively.
 
Selling, general and administrative expenses in our Consumer Phone Services segment decreased in the three and nine months ended April 30, 2013 compared to the similar periods in fiscal 2012 as the cost structure for this segment continued to be right-sized to the needs of its declining revenue base.

   
Three months ended
April 30,
   
Change
   
Nine months ended
April 30,
   
Change
 
   
2013
   
2012
   
$
    %    
2013
   
2012
    $    
%
 
   
(in millions)
 
Depreciation and amortization
                                               
Telecom Platform Services
  $ 3.3     $ 3.5     $ (0.2 )