f10q0409_idt.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
 
FORM 10-Q
____________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2009
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 1-16371
____________________
 
IDT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
____________________
 
   
Delaware
22-3415036
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
   
520 Broad Street, Newark, New Jersey
07102
(Address of principal executive offices)
(Zip Code)
 
(973) 438-1000
(Registrant’s telephone number, including area code)
____________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
       
Large accelerated filer
¨
Accelerated filer
x
       
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x
 
As of June 3, 2009, the registrant had the following shares outstanding:
 
   
Common Stock, $.01 par value:
4,294,254 shares outstanding (excluding 4,947,241 treasury shares)
Class A common stock, $.01 par value:
3,272,329 shares outstanding
Class B common stock, $.01 par value:
16,309,190 shares outstanding (excluding 6,603,762 treasury shares)
 
 
 
 

IDT CORPORATION
 

 
TABLE OF CONTENTS
 
PART I.  FINANCIAL INFORMATION
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Item 1A.
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PART I. FINANCIAL INFORMATION
 
Item 1.               Financial Statements (Unaudited)
 
IDT CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
April 30,
2009
    
July 31,
2008
  
   
(Unaudited)
    
(Note 1)
  
   
(in thousands)
  
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 126,095     $ 163,152  
Restricted cash and cash equivalents (Note 14)
     58,671       4,133  
Marketable securities (Note 14)
     16,553       111,462  
Trade accounts receivable, net of allowance for doubtful accounts of $20,641 at April 30, 2009 and
   $21,589 at July 31, 2008
     138,075       178,594  
Prepaid expenses
     16,351       22,572  
Investments—short-term
     5,464       22,563  
Other current assets
     32,510       55,761  
Assets of discontinued operations
     354       68,202  
                 
Total current assets
     394,073       626,439  
Property, plant and equipment, net
     197,530       227,944  
Goodwill
     12,355       74,509  
Licenses and other intangibles, net
     2,182       9,394  
Investments—long-term
     10,481       40,295  
Deferred income tax assets, net
     —       2,300  
Other assets
     19,281       22,094  
                 
Total assets
   $ 635,902     $ 1,002,975  
                 
Liabilities and stockholders’ equity
                
Current liabilities:
                
Trade accounts payable
   $ 54,816     $ 82,974  
Accrued expenses
     159,824       202,534  
Deferred revenue
     69,305       88,618  
Income taxes payable
     33,599       123,000  
Capital lease obligations—current portion
     7,682       9,316  
Notes payable—current portion
     2,185       2,115  
Other current liabilities
     14,534       15,021  
Liabilities of discontinued operations
     1,732       1,472  
                 
Total current liabilities
     343,677       525,050  
Capital lease obligations—long-term portion
     6,831       11,148  
Notes payable—long-term portion
     98,494       100,150  
Other liabilities
     17,474       18,441  
                 
Total liabilities
     466,476       654,789  
Minority interests
     3,353       5,849  
Commitments and contingencies
                
Stockholders’ equity:
                
Preferred stock, $.01 par value; authorized shares—10,000; no shares issued
     —       —  
Common stock, $.01 par value; authorized shares—100,000; 9,242 and 8,358 shares issued and 4,295 and 4,847 shares outstanding at April 30, 2009 and July 31, 2008, respectively
     92       84  
Class A common stock, $.01 par value; authorized shares—35,000; 3,272 shares issued and outstanding at April 30, 2009 and July 31, 2008
     33       33  
Class B common stock, $.01 par value; authorized shares—200,000; 22,913 and 21,301 shares issued and 16,309 and 17,083 shares outstanding at April 30, 2009 and July 31, 2008, respectively
     229       213  
Additional paid-in capital
     720,188       717,256  
Treasury stock, at cost, consisting of 4,947 and 3,511 shares of common stock and 6,604 and 4,218 shares of Class B common stock at April 30, 2009 and July 31, 2008, respectively
     (292,104 )     (285,536 )
Accumulated other comprehensive (loss) income
     (3,218 )     6,754  
Accumulated deficit
     (259,147 )     (96,467 )
                 
Total stockholders’ equity
     166,073       342,337  
                 
Total liabilities and stockholders’ equity
   $ 635,902     $ 1,002,975  
 
See accompanying notes to condensed consolidated financial statements.
 
 
 
IDT CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands, except per share data)
  
Revenues
   $ 388,989     $ 440,735     $ 1,258,781     $ 1,363,497  
Costs and expenses:
                                
Direct cost of revenues (exclusive of depreciation and amortization)
     295,706       350,550       963,865       1,077,620  
Selling, general and administrative (i)
     74,169       116,768       239,732       346,065  
Depreciation and amortization
     11,894       17,345       38,869       51,717  
Bad debt
     2,820       3,078       7,623       8,321  
Research and development
     1,548       8,885       7,932       9,808  
Impairments
     62,120       54       72,761       262  
Restructuring charges
     609       16,453       8,438       20,427  
                                 
Total costs and expenses
     448,866       513,133       1,339,220       1,514,220  
Gain on sale of interest in AMSO, LLC
     2,606       —       2,606       —  
Arbitration award income
     —       —       —       40,000  
                                 
Loss from operations
     (57,271 )     (72,398 )     (77,833 )     (110,723 )
Interest (expense) income, net
     (2,092 )     (299 )     (4,796 )     5,308  
Other income (expense), net
     1,141       (8,348 )     (30,637 )     (9,633 )
                                 
Loss from continuing operations before minority interests and income taxes
     (58,222 )     (81,045 )     (113,266 )     (115,048 )
Minority interests
     (822 )     (317 )     (36 )     (976 )
Provision for income taxes
     (1,353 )     (2,208 )     (10,511 )     (8,707 )
                                 
Loss from continuing operations
     (60,397 )     (83,570 )     (123,813 )     (124,731 )
Discontinued operations, net of tax:
                                
(Loss) income from discontinued operations
     (3,039 )     1,844       (38,867 )     (8,640 )
Loss on sale of discontinued operations
     —       (485 )     —       (4,529 )
                                 
Total discontinued operations
     (3,039 )     1,359       (38,867 )     (13,169 )
                                 
Net loss
   $ (63,436 )   $ (82,211 )   $ (162,680 )   $ (137,900 )
                                 
Earnings per share:
                                
Basic and diluted:
                                
Loss from continuing operations
   $ (2.74 )   $ (3.34 )   $ (5.36 )   $ (4.89 )
Total discontinued operations
     (0.14 )     0.05       (1.69 )     (0.51 )
                                 
Net loss
   $ (2.88 )   $ (3.29 )   $ (7.05 )   $ (5.40 )
                                 
Weighted-average number of shares used in calculation of basic and diluted earnings per share
     22,052       25,005       23,081       25,518  
                                 
                                 
(i)  Stock-based compensation included in selling, general and
   administrative expenses
   $ 760     $ —     $ 2,720     $ 3,169  
                                 
 
See accompanying notes to condensed consolidated financial statements.
 
 
IDT CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Nine Months Ended
April 30,
  
   
2009
    
2008
  
   
(in thousands)
  
Net cash used in operating activities
   $ (96,729 )   $ (115,303 )
Investing activities
                
Capital expenditures
     (10,703 )     (13,937 )
Purchase of building
     —       (24,778 )
Repayment of notes receivable, net
     168       14,789  
Investments and acquisitions
     (2,504 )     (21,749 )
Proceeds from sale and redemption of investments
     26,351       10,945  
Restricted cash and cash equivalents
     (54,538 )     791  
Proceeds from sale of interest in AMSO, LLC
     3,198       —  
Proceeds from sale of building
     —       4,872  
Proceeds from sales and maturities of marketable securities
     145,316       633,242  
Purchases of marketable securities
     (56,035 )     (402,058 )
                 
Net cash provided by investing activities
     51,253       202,117  
Financing activities
                
Distributions to minority shareholders of subsidiaries
     (2,285 )     (3,897 )
Proceeds from sales of stock of subsidiaries
     1,187       —  
Proceeds from exercise of stock options
     —       94  
Proceeds from employee stock purchase plan
     36       808  
Repayments of capital lease obligations
     (5,984 )     (22,722 )
Repayments of borrowings
     (1,585 )     (3,032 )
Repurchases of common stock and Class B common stock
     (6,568 )     (45,279 )
                 
Net cash used in financing activities
     (15,199 )     (74,028 )
Discontinued operations
                
Net cash (used in) provided by operating activities
     (2,808 )     6,966  
Net cash provided by (used in) investing activities
     29,687       (48,224 )
Net cash (used in) provided by financing activities
     (43 )     382  
                 
Net cash provided by (used in) discontinued operations
     26,836       (40,876 )
Effect of exchange rate changes on cash and cash equivalents
     (4,728 )     3,913  
                 
Net decrease in cash and cash equivalents
     (38,567 )     (24,177 )
Cash and cash equivalents (including discontinued operations) at beginning of period
     164,886       151,404  
                 
Cash and cash equivalents (including discontinued operations) at end of period
     126,319       127,227  
Less cash and cash equivalents of discontinued operations at end of period
     (224 )     (2,379 )
                 
Cash and cash equivalents (excluding discontinued operations) at end of period
   $ 126,095     $ 124,848  
                 
Supplemental schedule of non-cash investing activities
                
Purchases of property, plant and equipment through capital lease obligations
   $ 95     $ 234  
                 
Assumption of mortgage payable in connection with the purchase of building
   $ —     $ 26,851  
                 
 
See accompanying notes to condensed consolidated financial statements.
 
IDT CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1—Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of IDT Corporation and its subsidiaries (the “Company” or “IDT”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2009. The balance sheet at July 31, 2008 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2008, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
 
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2009 refers to the fiscal year ending July 31, 2009).
 
Certain prior year amounts have been reclassified to conform to the current year’s presentation. As described in Note 4, IDT Carmel has been reclassified to discontinued operations for all periods presented. At July 31, 2008, restricted cash and cash equivalents of $4.1 million previously included in cash and cash equivalents has been stated separately in the condensed consolidated balance sheet. Restricted cash and cash equivalents of $4.1 million, $2.4 million and $1.6 million at July 31, 2008, July 31, 2007 and April 30, 2008, respectively, previously included in cash and cash equivalents have been excluded from cash and cash equivalents in the condensed consolidated statements of cash flows. For the three and nine months ended April 30, 2008, impairments of $0.1 million and $0.3 million, respectively, and restructuring charges of $16.5 million and $20.4 million, respectively, previously combined in restructuring and severance charges have been stated separately in the condensed consolidated statement of operations. As described in Note 11, business segment results for the three and nine months ended April 30, 2008 have been reclassified and restated to conform to the current year’s presentation.
 
The Company records Universal Service Fund (“USF”) charges that are billed to customers on a gross basis in its results of operations, and records other taxes and surcharges on a net basis. USF charges in the amount of $0.6 million and $2.1 million in the three and nine months ended April 30, 2009, respectively, and $0.9 million and $2.9 million in the three and nine months ended April 30, 2008, respectively, were recorded on a gross basis.
 
On September 30, 2008 and October 8, 2008, the Company received notices from the New York Stock Exchange (“NYSE”) that it was no longer in compliance with the NYSE’s $100 million market capitalization threshold and the $1.00 average closing price over a consecutive 30-day trading period requirement, respectively, required for continued listing. The Company submitted a plan to the NYSE to regain compliance, and that plan was accepted. The NYSE monitors compliance with the plan and may commence delisting procedures prior to either deadline if the Company fails to meet the milestones set forth in its plan. The Company has until March 2010 to regain compliance with the $100 million market capitalization standard. In addition, according to the rules of the NYSE, the NYSE will promptly initiate suspension and delisting procedures with respect to a listed company that is determined to have average global market capitalization over a consecutive 30 trading-day period of less than $25 million. The NYSE has reduced this $25 million threshold to $15 million until June 30, 2009. The Company is currently in compliance with this reduced threshold. On April 8, 2009, the NYSE notified the Company that the stock price for each of the Company’s listed equity securities was above the NYSE’s minimum requirement of a $1.00 average share price over the preceding 30 trading days and a $1.00 share price on the close of the last trading day of the six-month cure period (April 8, 2009), thus restoring the Company’s compliance with the minimum share price requirement for continued listing on the NYSE.
 
A one-for-three reverse stock split of all of our outstanding common stock, Class A common stock and Class B common stock was effective on February 24, 2009 (see Note 6). All share, weighted average share and per share amounts in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to reflect the one-for-three reverse stock split. The one-for-three reverse stock split did not affect the number of authorized shares or the par value per share.
 
 
 
The Company incurred a loss from continuing operations in each of the five years in the period ended July 31, 2008 and in the nine months ended April 30, 2009. The Company incurred a net loss in the nine months ended April 30, 2009, and in fiscal 2008, fiscal 2006, fiscal 2005 and fiscal 2004, and would have incurred a net loss in fiscal 2007 except for a gain on the sale IDT Entertainment. The Company also had negative cash flow from operating activities in each of the three years in the period ended July 31, 2008 and in the nine months ended April 30, 2009. The Company had an accumulated deficit at April 30, 2009 of $259.1 million. Historically, the Company satisfied its cash requirements primarily through a combination of its existing cash and cash equivalents, proceeds from the sale of businesses, proceeds from the sales and maturities of marketable securities and investments, arbitration awards and litigation settlements, and borrowings from third parties. The Company currently expects its operations in the next twelve months and the balance of cash, cash equivalents, marketable securities and pooled investment vehicles including hedge funds that it held as of April 30, 2009 will be sufficient to meet its currently anticipated working capital and capital expenditure requirements, and to fund any potential operating cash flow deficits within any of its segments for at least the next twelve months. The foregoing is based on a number of assumptions, including that the Company will collect on its receivables, effectively manage its working capital requirements, prevail in legal actions and other claims initiated against it, and maintain its revenue levels and liquidity. Predicting these matters is particularly difficult in the current worldwide economic situation and overall decline in consumer demand. Failure to generate sufficient revenue and operating income could have a material adverse effect on the Company’s results of operations, financial condition and cash flows. The recoverability of assets is highly dependent on the ability of management to execute its business plan.
 
Note 2—Fair Value Measurements
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. SFAS 157 defines fair value, establishes a framework for measuring fair value in US GAAP, establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value, and expands the related disclosure requirements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model.
 
In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of the application of SFAS 157 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. Nonrecurring nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill impairment testing, indefinite lived intangible assets measured at fair value for impairment testing, those initially measured at fair value in a business combination, and nonfinancial liabilities initially measured at fair value for exit or disposal activities. The Company is required to adopt SFAS 157 for nonrecurring nonfinancial assets and nonfinancial liabilities on August 1, 2009. The Company does not expect the adoption of SFAS 157 for nonrecurring nonfinancial assets and nonfinancial liabilities to have a material impact on its financial position, results of operations or cash flows.
 
The Company adopted SFAS 157 except as permitted under FSP 157-2 as of August 1, 2008, which did not have a material impact on its financial statements. On October 10, 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies application of SFAS 157 in a market that is not active. FSP 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. The Company adopted FSP 157-3 in October 2008. On April 9, 2009, the FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which superseded FSP 157-3. FSP 157-4 provides additional guidance on (a) how to determine when markets become inactive and thus potentially require significant adjustment to transactions or quoted prices and (b) how to determine if a transaction or group of transactions is forced or distressed (that is, not orderly), and amends the disclosure provisions of SFAS 157. The Company was required to apply FSP 157-4 beginning on May 1, 2009. The Company does not expect FSP 157-4 to have a material impact on its financial position, results of operations or cash flows.
 
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
 
 
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of April 30, 2009:
 
   
Level 1 (1)
    
Level 2 (2)
    
Level 3 (3)\
    
Total
  
   
(in thousands)
  
Assets:
                        
Marketable securities
   $ 11,011     $ —     $ 5,193     $ 16,204  
Auction rate securities included in marketable securities
     —       —       349       349  
                                 
Total marketable securities
   $ 11,011     $ —     $ 5,542     $ 16,553  
                                 
Liabilities:
                                
Derivative contracts
   $ 610     $ —     $ 2,472     $ 3,082  
                                 
________________
(1) – quoted prices in active markets for identical assets or liabilities
(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) – no observable pricing inputs in the market

The Company’s investments in marketable securities are considered “available for sale.” The Company’s marketable securities at April 30, 2009 included auction rate securities with a par value of $14.3 million. The underlying asset for these securities is preferred stock of the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The fair values of the auction rate securities, which cannot be corroborated by the market, were estimated based on the value of the underlying assets and the Company’s assumptions, and are therefore classified as Level 3. The Company’s investments in pooled investment vehicles including hedge funds, which are included in “Investments—short-term” and “Investments—long-term” in the accompanying condensed consolidated balance sheets, are accounted for using the equity method unless the Company’s interest is so minor that it has virtually no influence over operating and financial policies pursuant to the guidance in Emerging Issues Task Force (“EITF”) Topic D-46, Accounting for Limited Partnership Investments and EITF 03-16, Accounting for Investments in Limited Liability Companies. The Company’s investments in pooled investment vehicles including hedge funds are therefore excluded from the fair value measurements table above.
 
The Company’s derivative contracts are valued using quoted market prices or significant unobservable inputs. These contracts consist of (1) natural gas and electricity forward contracts to fix the price that IDT Energy will pay for specified amounts of natural gas and electricity on specified dates, which are classified as Level 1, (2) an interest rate swap to achieve fixed rate debt, which is classified as Level 3, and (3) an embedded derivative in a structured note that must be bifurcated, which is classified as Level 3.
 
The following table summarizes the change in the balance of the Company’s assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at April 30, 2009:
 
   
Three Months Ended
April 30, 2009
    
Nine Months Ended
April 30, 2009
  
   
Assets
    
Liabilities
    
Assets
    
Liabilities
  
   
(in thousands)
  
Balance, beginning of period
   $ 5,619     $ (2,843 )   $ 53,265     $ (155 )
Total gains (losses) (realized or unrealized):
                                
Included in earnings in “Other expense, net”
     (100 )     371       (8,671 )     (2,317 )
Included in other comprehensive loss
     23       —       3,028       —  
Purchases, sales, issuances and settlements
     —       —       (42,080 )     —  
Transfers in (out) of Level 3
     —       —       —       —  
                                 
Balance, end of period
   $ 5,542     $ (2,472 )   $ 5,542     $ (2,472 )
                                 
The amount of total gains or losses for the period included in earnings in “Other expense, net” attributable to the change in unrealized gains or losses relating to assets or liabilities still held at the end of the period
   $ (100 )   $ 371     $ (6,750 )   $ (2,317 )
                                 

Effective August 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of SFAS 115. SFAS 159 permits companies to choose to measure selected financial assets and liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFAS 107, Disclosures about Fair Value of Financial Instruments. The Company chose not to elect the fair value option for the valuation of any of its eligible assets or liabilities, therefore the adoption of SFAS 159 had no impact on the Company’s financial position, results of operations or cash flows.
 
 
Note 3—Arbitration Award Income
 
In November 2007, the Company’s Net2Phone Cable Telephony subsidiary, which is included in its IDT Telecom Platform Services segment, was awarded approximately €23 million, plus interest from November 2005, in an arbitration proceeding against Altice One S.A. and certain of its affiliates. The arbitration proceeding related to Altice’s termination of cable telephony license agreements Net2Phone Cable Telephony had entered into in November 2004. The Company recorded a gain of $40.0 million for this arbitration award, including accrued interest, in the first quarter of fiscal 2008. The Company received €29.3 million in March 2008, which includes interest from November 2005.
 
Note 4—Discontinued Operations
 
IDT Carmel
 
On January 30, 2009, IDT Carmel, Inc., IDT Carmel Portfolio Management LLC, and FFPM Carmel Holdings I LLC (all of which are subsidiaries of the Company) (collectively “IDT Carmel”) and Sherman Originator III LLC consummated the sale, pursuant to a Purchase and Sale Contract, of substantially all of IDT Carmel Portfolio Management LLC’s debt portfolios with an aggregate face value of $951.6 million for cash of $18.0 million. The purchase price was received on February 2, 2009. The Company exited the debt collection business in April 2009. IDT Carmel met the criteria to be reported as a discontinued operation and accordingly, IDT Carmel’s assets, liabilities, results of operations and cash flows are classified as discontinued operations for all periods presented. IDT Carmel recognized a loss of $34.3 million in the second quarter of fiscal 2009 in connection with the sale of its debt portfolios.
 
Revenues, loss before income taxes and net loss of IDT Carmel, which is included in discontinued operations, are as follows:
 
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(in thousands)
  
Revenues
   $ 932     $ 12,513     $ 16,534     $ 34,542  
                                 
(Loss) income before income taxes
   $ (3,039 )   $ 1,830     $ (38,867 )   $ (8,335 )
                                 
Net (loss) income
   $ (3,039 )   $ 1,844     $ (38,867 )   $ (8,640 )
                                 

The assets and liabilities of IDT Carmel included in discontinued operations consist of the following:
 
   
April 30,
2009
    
July 31,
2008
  
   
(in thousands)
  
Assets
            
Cash and cash equivalents
   $ 224     $ 1,734  
Purchased debt portfolios
     24       63,059  
Equipment, net
     —       1,987  
Other
     106       1,422  
                 
Assets of discontinued operations
   $ 354     $ 68,202  
                 
Liabilities
                
Trade accounts payable
   $ 2     $ 2  
Accrued expenses
     1,730       954  
Other liabilities
     —       516  
                 
Liabilities of discontinued operations
   $ 1,732     $ 1,472  

IDT Entertainment
 
In the first quarter of fiscal 2007, the Company completed the sale of IDT Entertainment to Liberty Media Corporation. The Company is eligible to receive additional consideration from Liberty Media based upon any appreciation in the value of IDT Entertainment over the five-year period following the closing of the transaction or a shorter period under specified circumstances (“Contingent Value”), equal to 25% of the excess, if any, of the net equity value of IDT Entertainment over $453 million. However, the Company would have to pay Liberty Media up to $3.5 million if the Contingent Value does not exceed $439 million, which is included in “Other long-term liabilities” in the condensed consolidated balance sheet. Loss on sale of discontinued operations in the three and nine months ended April 30, 2008 of $0.5 million and $4.5 million, respectively, included compensation, taxes and the costs of a lawsuit, all of which arose from and were directly related to the operations of IDT Entertainment prior to its disposal.
 
 
Note 5—Investment in American Shale Oil, LLC
 
American Shale Oil Corporation (“AMSO”) was formed as a wholly-owned subsidiary of the Company in February 2008. In April 2008, AMSO acquired a 75% equity interest in American Shale Oil, L.L.C. (“AMSO, LLC”), in exchange for cash of $2.5 million and certain commitments for future funding of AMSO, LLC’s operations. In a separate transaction in April 2008, the Company acquired an additional 14.9437% equity interest in AMSO, LLC in exchange for cash of $3.0 million, bringing the total interest then held by the Company to approximately 90%.
 
AMSO, LLC is one of only three holders of leases granted by the U.S. Bureau of Land Management (“BLM”) to research, develop and demonstrate in-situ technologies for potential commercial shale oil production (“RD&D Leases”) in western Colorado. The other holders consist of Shell Frontier Oil and Gas, Inc. (three leases) and Chevron U.S.A., Inc. The RD&D Lease awarded to AMSO, LLC by the BLM covers an area of 160 acres. The lease runs for a ten year period beginning on January 1, 2007, and is subject to an extension of up to five years if AMSO, LLC can demonstrate that a process leading to the production of commercial quantities of shale oil is diligently being pursued. Once AMSO, LLC demonstrates the economic and environmental viability of its technology, it will have the opportunity to submit a one time payment pursuant to the Oil Shale Management Regulations and convert its RD&D Lease to a commercial lease on 5,120 acres which overlap and are contiguous with the 160 acres in its RD&D Lease.
 
In March 2009, pursuant to a Member Interest Purchase Agreement entered into on December 19, 2008, TOTAL E&P Research & Technology USA, (“Total”), a subsidiary of TOTAL E&P SCR/Recherche & Development, acquired a 50% interest in AMSO, LLC in exchange for cash paid to the Company of $3.2 million and Total’s commitment to fund the majority of AMSO, LLC’s capital requirements going forward. The Company recognized a gain of $2.6 million in the third quarter of fiscal 2009 in connection with the sale. While AMSO will operate the project during the RD&D phase, Total will provide a majority of the funding during this phase of the project, and technical assistance throughout the life of the project. Total will lead the planning of the commercial development and will assume management responsibilities during the subsequent commercial phase. Total’s indirect corporate parent, Total S.A., is the world’s fifth largest integrated oil and gas company.
 
The Company consolidated AMSO, LLC prior to the closing of the transaction with Total. Beginning with the closing, the Company accounts for its 50% ownership interest in AMSO, LLC using the equity method since the Company has the ability to exercise significant influence over its operating and financial matters, although it no longer controls AMSO, LLC. Pursuant to FASB Interpretation 46(R), Consolidation of Variable Interest Entities, AMSO, LLC is a variable interest entity, however, the Company is not the primary beneficiary because it will not absorb a majority of the expected losses or receive a majority of the expected residual returns.
 
The following table summarizes the change in the balance of the Company’s Investment in AMSO, LLC beginning with Total’s acquisition of a 50% interest in AMSO, LLC. The investment in AMSO, LLC is included in “Investments-long-term” in the consolidated balance sheet and equity in net loss of AMSO, LLC is included in “Other expense, net” in the consolidated statement of operations.
 
(in thousands)
      
Balance, March 2, 2009
   $ (65 )
Capital contributions
     904  
Equity in net loss of AMSO, LLC
     (192 )
         
Balance, April 30, 2009
   $ 647  
         

AMSO has committed to a total investment of $10.0 million in AMSO, LLC, subject to certain exceptions where the amount could be greater. At April 30, 2009, subject to certain exceptions, the Company’s minimum funding commitment as a result of its investment in AMSO, LLC is $8.3 million.
 
 
 
Summarized unaudited balance sheet data of AMSO, LLC is as follows:
 
   
April 30,
2009
    
July 31,
2008
  
   
(in thousands)
  
Assets
            
Cash and cash equivalents
   $ 3,777     $ 679  
Other current assets
     441       —  
Equipment, net
     8       —  
                 
Total assets
   $ 4,226     $ 679  
                 
Liabilities and members’ interests
                
Current liabilities
   $ 794     $ 105  
Other liabilities
     —       1,586  
Members’ interests
     3,432       (1,012 )
                 
Total liabilities and members’ interests
   $ 4,226     $ 679  
                 

Summarized unaudited statement of operations data of AMSO, LLC is as follows:
 
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
Revenues
   $ —     $ —     $ —     $ —  
Costs and expenses:
                                
Research and development
     1,086       548       4,113       548  
                                 
Total costs and expenses
     1,086       548       4,113       548  
                                 
Loss from operations
     (1,086 )     (548 )     (4,113 )     (548 )
Other income
     2       —       2       —  
                                 
Net loss
   $ (1,084 )   $ (548 )   $ (4,111 )   $ (548 )
                                 

Note 6—Stockholders’ Equity
 
On December 17, 2008, the Company’s Board of Directors approved, authorized and recommended to the Company’s stockholders to amend and restate the Company’s Restated Certificate of Incorporation to affect a one-for-three reverse split of each of the outstanding shares of the Company’s common stock, Class A common stock and Class B common stock. On January 20, 2009, Mr. Howard S. Jonas, the Company’s Chairman of the Board, and his affiliates, the record holders of shares representing a majority of the aggregate voting power of the Company’s outstanding capital stock, delivered to the Company a written consent in lieu of a special meeting of stockholders representing approximately 71% of the voting power of the Company’s stock, approving the amended Restated Certificate of Incorporation thereby approving the one-for-three reverse stock split. The one-for-three reverse stock split was effective on February 24, 2009. The one-for-three reverse stock split was intended to satisfy compliance with the NYSE’s price criteria for continued listing. All share, weighted average share and per share amounts, as well as stock option, non-vested restricted stock and contingently issuable share amounts, in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to reflect the one-for-three reverse stock split. The one-for-three reverse stock split did not affect the number of authorized shares or the par value per share.
 
On October 31, 2008, the Company entered into an Amended and Restated Employment Agreement with Mr. Jonas. Pursuant to this Agreement (i) the term of Mr. Jonas’ employment with the Company runs until December 31, 2013 and (ii) Mr. Jonas was granted 1.2 million restricted shares of the Company’s Class B common stock and 0.9 million restricted shares of the Company’s common stock in lieu of a cash base salary beginning January 1, 2009 through December 31, 2013. The restricted shares vest in different installments throughout the term of Mr. Jonas’ employment as delineated in the agreement, and all of the restricted shares paid to Mr. Jonas under the agreement automatically vest in the event of (i) a change in control of the Company; (ii) Mr. Jonas’ death; or (iii) if Mr. Jonas is terminated without cause or if he terminates his employment for good reason as defined in the agreement. A pro rata portion of the restricted shares will vest in the event of termination for cause. The restricted shares were granted on October 31, 2008 pursuant to the Company’s 2005 Stock Option and Incentive Plan. The 1.2 million restricted shares of the Company’s Class B common stock and 0.9 million restricted shares of the Company’s common stock granted on October 31, 2008 were included in the shares issued and outstanding at April 30, 2009. Total unrecognized compensation cost on the grant date was $5.5 million. The unrecognized compensation cost is expected to be recognized over the vesting period from January 1, 2009 through December 31, 2013. The Company recognized $0.2 million and $0.3 million of the compensation cost related to this agreement in the three and nine months ended April 30, 2009, respectively.
 
 
On November 5, 2008, the Company and Mr. James A. Courter, the Company’s Vice Chairman and Chief Executive Officer, entered into an amendment to Mr. Courter’s employment agreement. Pursuant to the amendment, Mr. Courter was granted 0.4 million restricted shares of Class B common stock in lieu of a cash base salary from January 1, 2009 until October 21, 2009. The restricted shares are scheduled to vest on October 21, 2009, the last day of the term under the amended employment agreement. Pursuant to the amendment, all of the restricted shares paid to Mr. Courter under the amendment automatically vest in the event of (i) a change in control of the Company; (ii) Mr. Courter’s death; or (iii) if Mr. Courter is terminated without cause or if he terminates his employment for good reason as defined by the amendment. A pro rata portion of the restricted shares will vest in the event of termination for cause. The restricted shares were granted on November 5, 2008 pursuant to the Company’s 2005 Stock Option and Incentive Plan. The 0.4 million restricted shares of the Company’s Class B common stock granted on November 5, 2008 were included in the shares issued and outstanding at April 30, 2009. Total unrecognized compensation cost on the grant date was $0.8 million. The unrecognized compensation cost is expected to be recognized from January 1, 2009 through October 21, 2009. The Company recognized $0.2 million and $0.3 million of the compensation cost related to this agreement in the three and nine months ended April 30, 2009, respectively.
 
In June 2006, the Company’s Board of Directors authorized a stock repurchase program for the repurchase of up to an aggregate of 8.3 million shares of the Company’s Class B common stock and common stock, without regard to class. On December 17, 2008, the Company’s Board of Directors increased the aggregate number of shares of the Company’s Class B common stock and common stock, without regard to class, that the Company is authorized to repurchase under the stock repurchase program from the 3.3 million shares that remained available for repurchase to 8.3 million shares. In the nine months ended April 30, 2009, the Company repurchased an aggregate of 2.4 million shares of Class B common stock and 1.4 million shares of common stock for an aggregate purchase price of $6.5 million. In the nine months ended April 30, 2008, the Company repurchased an aggregate of 1.8 million shares of Class B common stock and 0.2 million shares of common stock for an aggregate purchase price of $44.5 million. As of April 30, 2009, 7.0 million shares remained available for repurchase under the stock repurchase program.
 
Note 7—Earnings Per Share
 
The Company computes earnings per share under the provisions of SFAS No. 128, Earnings per Share, whereby basic earnings per share is computed by dividing net income (loss) attributable to all classes of common shareholders by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is determined in the same manner as basic earnings per share, except that the number of shares is increased to include non-vested restricted stock and to assume exercise of potentially dilutive stock options and contingently issuable shares using the treasury stock method, unless the effect of such increase is anti-dilutive. For the three and nine months ended April 30, 2009 and 2008, the diluted earnings per share equals basic earnings per share because the Company had losses from continuing operations and the impact of the assumed exercise of stock options and non-vested restricted stock would have been anti-dilutive. The following securities have been excluded from the dilutive earnings per share computations because their inclusion would have been anti-dilutive:
 
   
At April 30,
  
   
2009
    
2008
  
   
(in thousands)
  
Stock options
     2,029       2,502  
Non-vested restricted stock
     2,513       152  
Contingently issuable shares
     —       56  
                 
Total
     4,542       2,710  
                 

Note 8—Comprehensive Loss
 
The Company’s comprehensive loss consists of the following:
 
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(in thousands)
  
Net loss
   $ (63,436 )   $ (82,211 )   $ (162,680 )   $ (137,900 )
Foreign currency translation adjustments
     1,060       5,154       (13,005 )     (2,811 )
Unrealized gains (loss) on available-for-sale securities
     35       4,541       3,033       1,605  
                                 
Comprehensive loss
   $ (62,341 )   $ (72,516 )   $ (172,652 )   $ (139,106 )
                                 
 
 
Note 9—Impairments
 
The Company’s impairments by business segment consist of the following:
 
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(in thousands)
  
Telecom Platform Services
   $ 29,039     $ 54     $ 29,052     $ 242  
Consumer Phone Services
     —       —       —       —  
IDT Energy
     —       —       —       —  
IDT Capital
     33,081       —       43,709       20  
Corporate
     —       —       —       —  
                                 
Total
   $ 62,120     $ 54     $ 72,761     $ 262  
                                 

The Company recorded aggregate impairment charges of $72.8 million in the nine months ended April 30, 2009 of which $61.7 million related to goodwill, $5.3 million related to FCC licenses and $5.8 million related to other assets. In the second quarter of fiscal 2009, the following events and circumstances indicated that the fair value of certain of the Company’s reporting units may be below their carrying value: (1) a significant adverse change in the business climate, (2) operating losses of reporting units, (3) significant revisions to internal forecasts, and (4) plans to restructure operations including reductions in workforce. The Company measured the fair value of its reporting units by discounting their estimated future cash flows using an appropriate discount rate. The carrying value including goodwill exceeded the estimated fair value of the following reporting units: IDW Publishing, CTM Media Group, and WMET radio, all of which are units of IDT Capital, and Rechargeable, which is a unit of Telecom Platform Services. The Company therefore performed additional steps for these reporting units to determine whether an impairment of goodwill was required. As a result of this analysis, in the nine months ended April 30, 2009, the Company recorded preliminary goodwill impairment, which is subject to adjustment, of $1.8 million in IDW Publishing, $29.7 million in CTM Media Group, $1.2 million in WMET and $29.0 million in Rechargeable, which reduced the carrying amount of the goodwill in each of these reporting units to zero. The Company recorded the preliminary amounts because it was probable that goodwill was impaired, and the amount of impairment could be reasonably estimated. On April 30, 2009, the Company’s remaining goodwill was $12.4 million. Calculating the fair value of the reporting units, and allocating the estimated fair value to all of the tangible assets, intangible assets and liabilities, requires significant estimates and assumptions. Should these estimates or assumptions prove to be incorrect, the Company may record additional goodwill impairment or adjust its preliminary impairment in future periods.
 
IDT Spectrum, which is a unit of IDT Capital, recorded impairment in the nine months ended April 30, 2009 of $5.3 million, which reduced the carrying value of its FCC licenses to zero. The events and circumstances in the second quarter of fiscal 2009 described above indicated that the FCC licenses may be impaired. The Company estimated that these FCC licenses had nominal value based on continuing operating losses and projected losses for the foreseeable future.
 
The Company recorded an impairment of $3.5 million in the nine months ended April 30, 2009 which reduced the carrying value of IDT Global Israel’s building in Israel. The Company retained exclusive control over the sale of this building after the Company disposed of 80% of the issued and outstanding shares of IDT Global Israel in the fourth quarter of fiscal 2008. Once the building is sold, the Company will receive the net proceeds of the sale after the repayment of the obligations secured by the building. At April 30, 2009, the revised estimated sales price of the building net of costs to sell of $12.7 million was included in “Other current assets” and the mortgage balance of $6.0 million was included in “Other current liabilities”.
 
As a result of the Company’s conclusion that an interim impairment test of goodwill was required during the second quarter of fiscal 2009, the Company also assessed the recoverability of certain of its long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The assessment of long-lived assets was based on projected undiscounted future cash flows of the long-lived asset groups compared to their carrying values. The Company’s cash flow estimates were derived from the annual Company wide planning process and interim forecasting. The Company believes that its procedures for projecting future cash flows are reasonable and consistent with market conditions at the time of estimation. As a result of the Company’s assessment under SFAS 144, as of April 30, 2009, the Company recorded aggregate impairments of $2.3 million related to certain leasehold interests.
 
 
Note 10—Restructuring Charges
 
The Company’s restructuring charges by business segment consist of the following:
 
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(in thousands)
  
Telecom Platform Services
   $ 301     $ 11,432     $ 4,191     $ 13,438  
Consumer Phone Services
     —       482       —       542  
IDT Energy
     —       —       15       89  
IDT Capital
     40       29       1,623       856  
Corporate
     268       4,510       2,609       5,502  
                                 
Total
   $ 609     $ 16,453     $ 8,438     $ 20,427  
                                 

The restructuring charges in the three and nine months ended April 30, 2009 and 2008 consisted primarily of severance related to a company-wide cost savings program and reduction in force. As of April 30, 2009, these programs resulted in the termination of approximately 1,420 employees since the third quarter of fiscal 2006. As of April 30, 2009, the Company had a total of approximately 1,480 employees, of which approximately 1,060 are located in the United States and approximately 420 are located at the Company’s international operations. The restructuring charges in the nine months ended April 30, 2009 also included costs for the shutdown or consolidation of certain facilities of $0.7 million in Corporate and $0.8 million in IDT Telecom. In the first quarter of fiscal 2009, IDT Telecom reversed accrued severance of $2.6 million as a result of modifications to retention and/or severance agreements with certain employees. In the first quarter of fiscal 2008, IDT Spectrum reversed $0.4 million of restructuring charges recorded in fiscal 2006 for a contract termination.
 
The following table summarizes the changes in the reserve balances related to the Company’s restructuring activities (substantially all of which relates to workforce reductions):
 
   
Balance at
July 31,
2008
    
Charged to
Expense
    
Payments
    
Balance at
April 30,
2009
  
   
(in thousands)
  
IDT Telecom
   $ 10,854     $ 4,191     $ (11,471 )   $ 3,574  
IDT Energy
     —       15       (15 )     —  
IDT Capital
     526       1,623       (2,132 )     17  
Corporate
     7,076       2,609       (5,461 )     4,224  
                                 
Total
   $ 18,456     $ 8,438     $ (19,079 )   $ 7,815  
                                 

Note 11—Business Segment Information
 
The Company has the following three reportable business segments: Telecom Platform Services, Consumer Phone Services and IDT Energy. All other operating segments that are not reportable individually are collectively called IDT Capital. Telecom Platform Services and Consumer Phone Services comprise the IDT Telecom division. The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
 
The Telecom Platform Services segment includes wholesale carrier services provided to affiliates as well as other telecommunications companies. In addition, Telecom Platform Services markets and sells prepaid and rechargeable calling cards, prepaid wireless phone services and cable telephony services. The Consumer Phone Services segment provides consumer local and long distance services in the United States. The IDT Energy segment operates the Company’s Energy Services Company, or ESCO, in New York State. IDT Capital consists of the IDT Local Media businesses (principally CTM Media Group, WMET radio and IDW Publishing), Zedge (which provides a web-based, worldwide destination for free, user-generated mobile content distribution and sharing), Alternative Energy (which consists of AMSO, the Company’s U.S. oil shale initiative, and Israel Energy Initiatives, Ltd., the Company’s Israeli alternative energy venture), certain real estate investments and other smaller businesses. Corporate costs include certain services, such as corporate executive compensation, consulting fees, treasury and accounts payable, tax and accounting services, human resources and payroll, corporate purchasing, corporate governance including Board of Directors’ fees, internal and external audit, public and investor relations, corporate insurance, corporate legal, and business development, and other corporate-related general and administrative expenses including, among others, facilities costs, charitable contributions and travel, as well as depreciation expense on corporate assets. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
 
 
In fiscal 2008, the telecommunications termination network services and costs incurred by IDT Telecom on behalf of all of its segments were treated as belonging to the Wholesale Telecommunications Services segment, which then recovered a portion of such services and costs, plus an agreed-upon mark-up profit, through an inter-segment billing process. IDT Telecom’s senior management changed in the second half of fiscal 2008, and began to treat such termination network services and costs as a pass-through shared cost to all its segments rather than a profit center within Wholesale Telecommunications Services. As such, beginning in the first quarter of fiscal 2009, Wholesale Telecommunications Services ceased charging for the telecommunications services it provides to other segments, and the allocation of such services and related costs within IDT Telecom was revised accordingly. Beginning in the second quarter of fiscal 2009, the Prepaid Products segment and the Wholesale Telecommunications Services segment were combined into the Telecom Platform Services segment, and consumer phone services outside the United States were transferred from the Consumer Phone Services segment to Telecom Platform Services. The changes in the second quarter of fiscal 2009 reflect the overlap in the methods used to provide consumer phone services outside the United States, prepaid products and wholesale telecommunications services, as well as the way the operating results are reported and reviewed by the Company’s chief operating decision maker. In addition, in the first quarter of fiscal 2009, certain real estate investments that were historically included in Corporate were transferred to IDT Capital, and IDW Publishing was transferred from the IDT Internet Mobile Group in IDT Capital to IDT Local Media in IDT Capital. To the extent possible, comparative historical results have been reclassified and restated as if the fiscal 2009 business segment structure existed in all periods presented, although these results may not be indicative of the results which would have been achieved had the business segment structure been in effect during those periods.
 
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on operating income (loss). IDT Telecom depreciation and amortization are allocated to Telecom Platform Services and Consumer Phone Services because the related assets are not tracked separately by segment. There are no other significant asymmetrical allocations to segments.
 
Operating results for the business segments of the Company are as follows:
 
(in thousands)
  
Telecom
Platform
Services
    
Consumer
Phone
Services
    
IDT
Energy
    
IDT
Capital
    
Corporate
    
Total
  
Three Months Ended April 30, 2009
                                    
Revenues
   $ 299,595     $ 12,577     $ 66,669     $ 10,148     $ —     $ 388,989  
Operating (loss) income
     (33,012 )     3,588       12,819       (34,278 )     (6,388 )     (57,271 )
Impairments
     29,039       —       —       33,081       —       62,120  
Restructuring charges
     301       —       —       40       268       609  
                                                 
Three Months Ended April 30, 2008
                                                
Revenues
   $ 342,403     $ 18,965     $ 66,290     $ 13,077     $ —     $ 440,735  
Operating (loss) income
     (35,443 )     8,197       850       (17,724 )     (28,278 )     (72,398 )
Impairments
     54       —       —       —       —       54  
Restructuring charges
     11,432       482       —       29       4,510       16,453  
                                                 
Nine Months Ended April 30, 2009
                                                
Revenues
   $ 956,132     $ 42,117     $ 227,720     $ 32,812     $ —     $ 1,258,781  
Operating (loss) income
     (49,602 )     15,312       40,363       (57,463 )     (26,443 )     (77,833 )
Impairments
     29,052       —       —       43,709       —       72,761  
Restructuring charges
     4,191       —       15       1,623       2,609       8,438  
                                                 
Nine Months Ended April 30, 2008
                                                
Revenues
   $ 1,087,327     $ 63,648     $ 173,434     $ 39,088     $ —     $ 1,363,497  
Operating (loss) income
     (23,428 )     18,448       4,459       (45,579 )     (64,623 )     (110,723 )
Impairments
     242       —       —       20       —       262  
Restructuring charges
     13,438       542       89       856       5,502       20,427  

IDT Capital’s loss from operations in the three and nine months ended April 30, 2009 is net of a gain of $2.6 million from the sale of a 50% interest in AMSO, LLC (see Note 5). The Telecom Platform Services segment’s loss from operations in the nine months ended April 30, 2008 is net of arbitration award income of $40.0 million (see Note 3).
 
Note 12—Derivative Instruments
 
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. Natural gas and electricity forward contracts are entered into to fix the price that IDT Energy will pay for specified amounts of natural gas and electricity on specified dates. An interest rate swap is used to achieve a fixed interest rate on a portion of the Company’s variable-rate debt. Finally, one of the Company’s marketable securities is a structured note that contains an embedded derivative feature.
 
 
IDT Energy has entered into forward contracts as hedges against unfavorable fluctuations in natural gas and electricity prices. These contracts do not qualify for hedge accounting treatment and therefore, the changes in fair value are recorded in earnings. As of April 30, 2009, IDT Energy had the following outstanding forward contracts:
 
Commodity
  
Settlement Date
  
Volume
Electricity
  
June 2009
  
8,800 MW h
Electricity
  
September 2009
  
8,400 MW h
Natural gas
  
August 2009
  
77,500 mmbtu
Natural gas
  
January 2010
  
77,500 mmbtu
Natural gas
  
February 2010
  
70,000 mmbtu
Natural gas
  
March 2010
  
77,500 mmbtu

The Company has an interest rate swap related to the variable rate obligations secured by the IDT Global Israel building. As of April 30, 2009, the total notional amount of the Company’s receive variable/pay fixed interest rate swap was $6.0 million.
 
The structured note included in marketable securities as of April 30, 2009 has a par value of $5.0 million and matures in November 2009.
 
The fair value of outstanding derivative instruments recorded as liabilities in the accompanying condensed consolidated balance sheets were as follows:
 
Liability Derivatives
  
Balance Sheet Location
  
April 30, 2009
    
July 31, 2008
  
       
(in thousands)
  
Derivatives designated as hedging instruments under SFAS 133:
                
Energy contracts
  
Other current liabilities
   $ 610     $ —  
Interest rate contracts
  
Other current liabilities
     321       —  
                     
Total derivatives designated as hedging
instruments under SFAS 133
         931       —  
Derivatives not designated as hedging instruments under SFAS 133:
                    
Structured note embedded derivative
  
Other current liabilities
     2,151       —  
                     
Total derivatives not designated as hedging
instruments under SFAS 133
         2,151       —  
                     
Total liability derivatives
       $ 3,082     $ —  
                     

The effects of derivative instruments on the condensed consolidated statements of operations were as follows:
 
   
Amount of Gain (Loss) Recognized on Derivatives
  
       
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
 Derivatives in SFAS 133 Fair Value Hedging Relationships
Location of Gain (Loss) Recognized on Derivatives
  
2009
    
2008
    
2009
    
2008
  
     
(in thousands)
  
Energy contracts
Direct cost of revenues
   $ (290 )   $ 21     $ (1,067 )   $ 665  
Interest rate contracts
Other income (expense), net
     53       —       (321 )     —  
                                 
Total
     $ (237 )   $ 21     $ (1,388 )   $ 665  
                                 

   
Amount of Gain (Loss) Recognized on Derivatives
  
       
   
Three Months Ended
April 30,
    
Nine Months Ended
April 30,
  
 Derivatives Not Designated as Hedging Instruments Under SFAS 133
Location of Gain (Loss) Recognized on Derivatives
  
2009
    
2008
    
2009
    
2008
  
     
(in thousands)
  
Structured note embedded derivative
Other income (expense), net
   $ 318     $ —     $ (1,996 )   $ —  
                                 
Total
     $ 318     $