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IDT CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) This Annual Report 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 this Annual Report. The forward-looking statements are made as of the date of this Annual 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 Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report. OVERVIEW We are a multinational holding company with operations primarily in the telecommunications and payment industries. We have three reportable business segments, Telecom Platform Services, Consumer Phone Services and Zedge. Telecom Platform Services provides retail telecommunications and payment offerings as well as wholesale international long distance traffic termination. Consumer Phone Services provides consumer local and long distance services in certain U.S. states. Telecom Platform Services and Consumer Phone Services comprise our IDT Telecom division. Zedge owns and operates an online platform for mobile phone consumers interested in obtaining free, high-quality games, apps, and mobile phone customization including ringtones, wallpapers, and notification sounds. Operating segments not reportable individually are included in All Other. All Other includes Fabrix, a software development company offering a cloud-based scale-out storage and computing platform optimized for big data, virtualization and media storage, processing and delivery. We sold Fabrix in October 2014. All Other also includes our real estate holdings, and other,smaller, businesses. Discontinued Operations Straight Path Communications, Inc. On July 31, 2013, we completed a pro rata distribution of the common stock of our subsidiary Straight Path Communications Inc. to our stockholders of record as of the close of business on July 25, 2013. At the time of the Straight Path Spin-Off, Straight Path owned 100% of Straight Path Spectrum, Inc., which holds, leases and markets fixed wireless spectrum licenses, and 84.5% of Straight Path IP Group, Inc., which holds intellectual property primarily related to communications over the Internet and the licensing and other businesses related to this intellectual property. As of July 31, 2013, each of our stockholders received one share of Straight Path Class A common stock for every two shares of our Class A common stock and one share of Straight Path Class B common stock for every two shares of our Class B common stock held of record as of the close of business on July 25, 2013. Straight Path and its 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. 24 We believe the Straight Path Spin-Off was tax-free for us and our stockholders for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code of 1986. We received an opinion from Pryor Cashman LLP on the requirements for a tax-free distribution. Specifically, the opinion concluded 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 Straight Path Spin-Off, we funded Straight Path with a total of $15.0 million in aggregate cash and cash equivalents. We entered into various agreements with Straight Path prior to the Straight Path Spin-Off including (1) a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with Straight Path after the spin-off, (2) a Tax Separation Agreement, which sets forth our and Straight Path's responsibilities 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, and (3) a Transition Services Agreement, which provides for certain services to be performed by us to facilitate Straight Path's transition into a separate publicly-traded company. These agreements provide for, among other things, the allocation between us and Straight Path of employee benefits, taxes and other liabilities and obligations attributable to periods prior to the spin-off, and provision of certain services by us to Straight Path following the spin-off, including services relating to human resources and employee benefits administration, treasury, accounting, tax, external reporting, and legal. Straight Path transitioned accounting and external reporting services from us to a third party in the first quarter of fiscal 2015. In addition, we and Straight Path have entered into a license agreement whereby each of us, Straight Path and our subsidiaries granted and will grant a license to the other to utilize patents held by each entity. Genie Energy Ltd. On October 28, 2011, we completed a pro rata distribution of the common stock of our subsidiary, Genie Energy Ltd., 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 its 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. We received a ruling from the Internal Revenue Service, or 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, 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 Genie 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, external reporting, 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. 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 fiscal 2012 in the accompanying consolidated statement of income. 25 Summary Financial Data of Discontinued Operations Revenues, income before income taxes and net income (loss) of Straight Path and Genie, which are included in discontinued operations, were as follows: Year ended July 31 (in millions) 2014 2013 2012 REVENUESStraight Path and subsidiaries $ - $ 1.1 $ 0.5 Genie and subsidiaries - - 45.8 TOTAL $ - $ 1.1 $ 46.3 (LOSS) INCOME BEFORE INCOME TAXES Straight Path and subsidiaries $ - $ (4.6 ) $ 4.9 Genie and subsidiaries - - 2.6 TOTAL $ - $ (4.6 ) $ 7.5 NET (LOSS) INCOME Straight Path and subsidiaries $ - $ (4.6 ) $ 4.9 Genie and subsidiaries - - 1.0 TOTAL $ - $ (4.6 ) $ 5.9 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 98.5%, 98.9% and 99.3% of our total revenues from continuing operations in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Telecom Platform Services, which represented 99.3%, 99.1% and 98.7% of IDT Telecom's total revenues in fiscal 2014, fiscal 2013 and fiscal 2012, respectively, markets and distributes multiple communications and payment services across four broad business verticals: ? Retail Communications provides international long-distance calling products primarily to foreign-born communities worldwide, with its core markets in the United States; ? 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 service providers; ? Payment Services provides payment offerings, including international airtime top-up and international money transfer sold over our Boss Revolution payment platform; and ? Hosted Platform Solutions provides customized communications services that leverage our proprietary networks, platforms and/or technology to cable companies and other service providers. Our Consumer Phone Services segment provides consumer local and long distance services in the United States. Since calendar 2005, this business has been in harvest mode, wherein we seek to retain existing customers but do not actively market to new customers, and we attempt to maximize profits by optimally managing both the life-cycle of our customer base as well as the costs associated with operating this business. Our international prepaid calling business worldwide sells the great majority of its products to distributors at a discount to their face value, and records the sales as deferred revenues. These deferred revenues are recognized as revenues when telecommunications services are provided and/or administrative fees are imposed. International prepaid calling revenues tend to be somewhat seasonal, with the second fiscal quarter (which contains Christmas and New Year's Day) and the fourth fiscal quarter (which contains Mother's Day and Father's Day) typically showing higher minute volumes. Direct costs related to our telecom businesses consist primarily of three major categories: termination and origination costs, toll-free costs and network costs. Termination costs represent costs associated with the transmission and termination of international and domestic long distance services. We terminate our traffic via the arbitrage market or through direct interconnections with other carriers. This cost is primarily variable, with a price paid on a per-minute basis. Origination costs relating to our Consumer Phone Services segment consists primarily of leased lines from the RBOCs, which are billed to us as a monthly fee. Toll-free costs are variable costs paid to providers of toll-free services. Network costs, which are also called connectivity costs, are fixed for a range of minutes of use, and include customer/carrier interconnect charges and leased fiber circuit charges. Local circuits are generally leased for a 12 to 24 month term, while long haul circuits generally are leased for longer terms. Although these are not purely variable costs, where the cost increases for each additional minute carried on our suppliers' networks, increases in minutes will likely result in incrementally higher network costs. 26 Direct costs related to our telecom business include an estimate of charges for which invoices have not yet been received, and estimated amounts for pending disputes with other carriers. Subsequent adjustments to these estimates may occur after the invoices are received for the actual costs incurred, but these adjustments generally are not material to our results of operations. Selling expenses in IDT Telecom consist primarily of sales commissions paid to internal salespersons and independent agents, and advertising costs, which are the primary costs associated with the acquisition of customers. General and administrative expenses include employee compensation, benefits, professional fees, rent and other administrative costs. IDT Telecom's Retail Communications offerings generally have higher selling, general and administrative expenses than the Wholesale Termination Services business. Telecom Competition Over the past few years, the telecommunications industry has experienced a continued shift in demand away from traditional calling cards and into wireless and IP-based products, which, among other things, has, and continues to contribute 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 products' sales and margins. To combat this trend, we have introduced in recent years new products and services, such as Boss Revolution PIN-less and international airtime top-up that have now largely replaced revenues from our traditional disposable calling cards. Boss Revolution PIN-less allows our customers to call overseas without the need to enter a PIN. International airtime top-up, which enables customers to purchase airtime for a prepaid mobile telephone in another country, 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 international airtime top-up represent successful efforts to leverage our existing capabilities and distribution. Although Boss Revolution PIN-less and international airtime top-up generally have lower gross margins than our traditional disposable calling cards, we believe that customers tend to continue using these products over a longer period of time thereby allowing us to generate higher revenues and longer lifetime value per user. The Boss Revolution payment platform provides us with a direct, real-time relationship with all of our participating retailers, resulting in a cost-effective and adaptable distribution model that can rapidly respond to changes in the business environment. There can be no assurance that we will continue to grow our Boss Revolution PIN-less and international airtime top-up sales, or that we will be able to continue to generate new sources of revenue to offset the continuing decline in our traditional disposable calling card revenues or possible future declines in Boss Revolution PIN-less or other sources of revenue. 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 historically had to pass along all or most of our per-minute cost savings to our customers in the form of lower prices. Concentration of Customers Our most significant customers typically include telecom carriers to whom IDT Telecom provides wholesale telecommunications services and distributors of IDT Telecom's international prepaid calling products. While they may vary from quarter to quarter, our five largest customers collectively accounted for 12.0%, 10.0% and 8.1% of total consolidated revenues from continuing operations in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Our customers with the five largest receivables balances collectively accounted for 22.1% and 16.6% of the consolidated gross trade accounts receivable at July 31, 2014 and 2013, respectively. This concentration of customers increases our risk associated with nonpayment by those customers. In an effort to reduce our risk, we perform ongoing credit evaluations of our significant retail, wholesale and cable telephony customers, and in some cases, do not offer credit terms to customers, choosing instead to demand prepayment. Historically, when we have issued credit, we have not required collateral to support trade accounts receivables from our customers. However, when necessary, IDT Telecom has imposed stricter credit restrictions on its customers. In some cases, this has resulted in IDT Telecom sharply curtailing, or ceasing completely, sales to certain customers. IDT Telecom attempts to mitigate its credit risk related to specific wholesale termination customers by also buying services from the customer, in order to create an opportunity to offset its payables and receivables with the customer. In this way, IDT Telecom can continue to sell services to these customers while reducing its receivable exposure risk. When it is practical to do so, IDT Telecom will increase its purchases from wholesale termination customers with receivable balances that exceed IDT Telecom's applicable payables in order to maximize the offset and reduce its credit risk. CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue 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 taxes and regulatory agency fees, and IDT Telecom direct cost of revenues-disputed amounts. 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. See Note 1 to the Consolidated Financial Statements in this Annual Report for a complete discussion of our significant accounting policies. 27 Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses that result from the inability or unwillingness of our customers to make required payments. The allowance for doubtful accounts was $11.5 million and $13.1 million at July 31, 2014 and 2013, respectively. The allowance for doubtful accounts as a percentage of gross trade accounts receivable decreased to 14.2% at July 31, 2014 from 16.7% at July 31, 2013 as a result of a decline in the allowance for doubtful accounts at IDT Telecom and an increase in the gross trade accounts receivable balance at Fabrix. Our allowance is determined based on known troubled accounts, historical experience and other currently available evidence. Our estimates of recoverability of customer accounts may change due to new developments, changes in assumptions or changes in our strategy, which may impact our allowance for doubtful accounts balance. We continually assess the likelihood of potential amounts or ranges of recoverability and adjust our allowance accordingly; however, actual collections and write-offs of trade accounts receivables may materially differ from our estimates. Goodwill Our goodwill balance of $14.8 million at July 31, 2014 was attributable to our Retail Communications reporting unit in our Telecom Platform Services segment ($11.6 million) and Zedge ($3.2 million). Goodwill and other intangible assets deemed to have indefinite lives are not amortized. These assets are reviewed annually (or more frequently under various conditions) for impairment using a fair value approach. Intangible assets with finite useful lives are amortized over their estimated useful lives. The goodwill impairment assessment involves estimating the fair value of the reporting unit and comparing it to its carrying amount, which is known as Step 1. If the carrying value of the reporting unit exceeds its estimated fair value, Step 2 is performed to determine if an impairment of goodwill is required. We estimate the fair value of our reporting units using discounted cash flow methodologies, as well as considering third party market value indicators. Goodwill impairment is measured by the excess of the carrying amount of the reporting unit's goodwill over its implied fair value. We have the option to perform a qualitative assessment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. However, we may elect to perform the two-step quantitative goodwill impairment test even if no indications of a potential impairment exist. For our Retail Communications reporting unit with a negative carrying amount, we perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, we consider whether there are any adverse qualitative factors indicating that impairment may exist. For Retail Communications' annual impairment tests, we qualitatively assessed whether it was more likely than not that a goodwill impairment existed and concluded that a goodwill impairment did not exist. For Zedge, its estimated fair value substantially exceeded its carrying value in Step 1 of our annual impairment tests, therefore it was not necessary to perform Step 2. In addition, we do not believe our reporting units are currently at risk of failing Step 1. 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 by management. Should our estimates or assumptions regarding the fair value of our reporting units prove to be incorrect, we may be required to record impairments of goodwill in future periods and such impairments could be material. Valuation of Long-Lived Assets including Intangible Assets with Finite Useful Lives We test the recoverability of our long-lived assets including identifiable intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of any such asset may not be recoverable. Such events or changes in circumstances include: ? significant actual underperformance relative to expected performance or projected future operating results; ? significant changes in the manner or use of the asset or the strategy of our overall business; ? significant adverse changes in the business climate in which we operate; and ? loss of a significant contract. If we determine that the carrying value of certain long-lived assets may not be recoverable, we test for impairment based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, we will record an impairment loss based on the difference between the estimated fair value and the carrying value of the asset. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from the asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should our estimates and assumptions prove to be incorrect, we may be required to record impairments in future periods and such impairments could be material. 28 In fiscal 2013, we recorded an impairment charge of $4.4 million for the building and improvements that we own at 520 Broad Street, Newark, New Jersey. At both July 31, 2014 and 2013, the carrying value of the land, building and improvements at 520 Broad Street after the impairment charge was $37.7 million. Income Taxes and Regulatory Agency Fees Our current and deferred income taxes and associated valuation allowance, as well as telecom regulatory agency fee accruals, are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-routine items. Assessment of the appropriate amount and classification of income taxes and certain regulatory agency fees is dependent on several factors, including estimates of the timing and realization of deferred income tax assets, the results of regulatory fee-related audits, changes in tax laws or regulatory agency rules and regulations, as well as unanticipated future actions impacting related accruals of regulatory agency fees. The valuation allowance on our deferred income tax assets was $152.0 million and $167.3 million at July 31, 2014 and 2013, respectively. In fiscal 2012, we determined that it was more likely than not that a portion of our deferred income tax assets would be realized, therefore we reversed $36.9 million of the valuation allowance related to those assets. We based our determination on a projection of future U.S. income and took into consideration the historical U.S. performance and decided a release of the U.S. valuation that relates to the core businesses was warranted in that period. Assumptions regarding future taxable income require significant analysis and judgment. This analysis included financial forecasts based on historical performance of the core business and continuance of doing business in a jurisdiction in which losses are incurred. Based on our projections, we expected that we would generate future taxable income over the next five years in the U.S. jurisdiction and will begin utilizing our net operating loss carryover through this period. Accordingly, we concluded that a portion of our U.S. jurisdiction core business assets did not require a full valuation allowance. In fiscal 2013 and fiscal 2014, we updated the analysis and concluded that the valuation allowance related to our core U.S. business should be maintained at the current level and will be reevaluated as warranted. In addition, in fiscal 2014, we determined that our valuation allowance on the losses of IDT Global, a U.K. subsidiary, were no longer required due to an internal reorganization that generated income and a projection that the income would continue. We recorded a benefit from income taxes of $4.1 million from the full recognition of the IDT Global deferredtax assets. We did not release any of the valuation allowances that related to our former Straight Path Spectrum business since it was not part of the main tax consolidated group and the portion of the Net2Phone acquired net operating loss that is subject to Internal Revenue Code Section 382 limitations. We did not release any of the valuation allowances related to our foreign operations in fiscal 2013 or fiscal 2012 as it is not more likely than not that the assets will be utilized based upon the earnings history and the current profitability projections. We have not recorded U.S. income tax expense for foreign earnings, as such earnings are permanently reinvested outside the United States. The cumulative undistributed foreign earnings are included in accumulated deficit in our consolidated balance sheets, and consisted of approximately $270 million at July 31, 2014. Upon distribution of these foreign earnings to our domestic entities, we may be subject to U.S. income taxes and withholding of foreign taxes, however, it is not practicable to determine the amount, if any, which wouldbe paid. Our FCC Form 499-A filings for calendar years 2000 through 2006 related to payments to the Universal Service Fund have been audited by the Internal Audit Division of USAC, which concluded that we incorrectly reported certain revenues on Forms 499-A. USAC's revisions to our filing methodology resulted in additional regulatory payments for the years covered by the audits. While we believe in the accuracy of our filing methodology and our Request for Review remains pending, we have implemented some of the revisions set forth in the IAD's filings beginning with our calendar year 2010 Form 499-A. We have accrued for all regulatory fees we believe may be incurred under IAD's methodology from 2002 through the present, in the event our Request for Review is denied and/or our methodology is not upheld on appeal, and we have made certain payments on amounts that have been invoiced to us by USAC and/or other agencies. As of July 31, 2014, our accrued expenses included $42.7 million for these regulatory fees for the years covered by the audit and subsequent years through fiscal 2014. Until a final decision has been reached in our disputes, we will continue to accrue in accordance with IAD's methodology. If we do not properly calculate, or have not properly calculated, the amount payable by us to the Universal Service Fund, we may be subject to interest and penalties. IDT Telecom Direct Cost of Revenues-Disputed Amounts IDT Telecom's direct cost of revenues includes estimated amounts for pending disputes with other carriers. The billing disputes typically arise from differences in minutes of use and/or rates charged by carriers that provide service to us. At July 31, 2014 and 2013, there was $19.8 million and $18.0 million, respectively, in outstanding carrier payable disputes, for which we recorded direct cost of revenues of $7.9 million and $6.8 million, respectively. We consider various factors to determine the amount to accrue for pending disputes, including (1) our historical experience in dispute resolution, (2) the basis of disputes, (3) the financial status and our current relationship with vendors and (4) our aging of prior disputes. Subsequent adjustments to our estimates may occur when disputes are resolved or abandoned, but these adjustments are generally not material to our results of operations. However, there can be no assurance that revisions to our estimates will not be material to our results of operations in the future. 29 RECENTLY ISSUED ACCOUNTING STANDARD NOT YET ADOPTED In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard that will supersede most of the current revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards, or IFRS. The goals of the revenue recognition project were to clarify and converge the revenue recognition principles under U.S. GAAP and IFRS and to develop guidance that would streamline and enhance revenue recognition requirements. We will adopt this standard on August 1, 2017. Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. We are evaluating the impact that the standard will have on our consolidated financial statements. RECENTLY ADOPTED ACCOUNTING STANDARD In April 2014, an accounting standard update was issued that changed the criteria for reporting discontinued operations and enhanced convergence of U.S. GAAP and IFRS reporting requirements for discontinued operations. The amendments in the update raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in previously issued financial statements. We adopted this standard update as of August 1, 2014. In accordance with this standard update, we do not expect the sale of Fabrix in October 2014 to qualify as a discontinued operation. We are unable to determine at this time whether the adoption of this standard update will have further effect on our financial position, results of operations or cash flows in the future for other disposals. RESULTS OF OPERATIONS Year Ended July 31, 2014 compared to Years Ended July 31, 2013 and 2012 The following table sets forth certain items in our statements of income as a percentage of our total revenues from continuing operations: Year ended July 31, 2014 2013 2012 REVENUES: IDT Telecom 98.5 % 98.9 % 99.3 % Zedge 0.4 0.4 0.3 All Other 1.1 0.7 0.4 TOTAL REVENUES 100.0 100.0 100.0 COSTS AND EXPENSES: Direct cost of revenues (exclusive of depreciation and amortization) 82.8 83.7 84.3 Selling, general and administrative 13.9 13.5 13.7 Depreciation and amortization 1.0 0.9 1.1 Research and development 0.6 0.4 0.3 Impairment of building and improvements - 0.3 - TOTAL COSTS AND EXPENSES 98.3 98.8 99.4 Other operating gains (losses), net 0.1 0.6 (1.1 ) INCOME (LOSS) FROM OPERATIONS 1.8 1.8 (0.5 ) Interest expense, net - - (0.2 ) Other (expense) income, net (0.3 ) 0.3 (0.1 ) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1.5 % 2.1 % (0.8 )% 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 (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Revenues Telecom PlatformServices $ 1,615.6 $ 1,588.1 $ 1,477.8 $ 27.5 1.7 % $ 110.3 7.5 % Consumer Phone Services 11.0 14.5 19.3 (3.5 ) (24.1 ) (4.8 ) (24.8 ) Totalrevenues $ 1,626.6 $ 1,602.6 $ 1,497.1 $ 24.0 1.5 % $ 105.5 7.0 % Revenues. IDT Telecom revenues increased in fiscal 2014 and fiscal 2013 compared to the prior fiscal year 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 fiscal 2012 to 99.1% in fiscal 2013 and 99.3% in fiscal 2014, and Consumer Phone Services' revenues decreased from 1.3% in fiscal 2012 to 0.9% in fiscal 2013and 0.7% in fiscal 2014. 30 Telecom Platform Services' revenues, minutes of use and average revenue per minute for fiscal 2014, fiscal 2013 and fiscal 2012 consisted of the following: (in millions, except revenue per minute) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $/# % $/# % Telecom Platform Services Revenues Retail Communications $ 695.8 $ 656.7 $ 549.9 $ 39.1 5.9 % $ 106.8 19.4 % Wholesale Telecommunications Services 672.3 687.9 716.4 (15.6 ) (2.3 ) (28.5 ) (4.0 ) Payment Services 202.5 193.5 154.7 9.0 4.6 38.8 25.2 Hosted Platform Solutions 45.0 50.0 56.8 (5.0 ) (10.0 ) (6.8 ) (11.9 ) Total Telecom Platform Services revenues $ 1,615.6 $ 1,588.1 $ 1,477.8 $ 27.5 1.7 % $ 110.3 7.5 % Minutes of use Retail Communications 9,596 9,418 8,385 178 1.9 % 1,033 12.3 % Wholesale Telecommunications Services 19,190 22,365 21,370 (3,175 ) (14.2 ) 995 4.7 Hosted Platform Solutions 802 888 1,032 (86 ) (9.7 ) (144 ) (13.9 ) Total minutes of use 29,588 32,671 30,787 (3,083 ) (9.4 )% 1,884 6.1 % Average revenue per minute Retail Communications $ 0.0725 $ 0.0697 $ 0.0656 $ 0.0028 4.0 % $ 0.0041 6.3 % Wholesale Telecommunications Services 0.0350 0.0307 0.0335 0.0043 13.9 (0.0028 ) (8.2 ) Retail Communications minutes of use increased 1.9% and 12.3% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year. In fiscal 2014 and fiscal 2013, the increases were driven by the volume growth in the U.S., which more than offset the decrease in minutes of use in Europe and South America. Minutes of use in Asia also decreased in fiscal 2014 compared to fiscal 2013, and increased in fiscal 2013 compared to fiscal 2012. Retail Communications' revenues grew 5.9% and 19.4% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year. The revenue and minutes of use growth was led by penetration and acceptance of Boss Revolution within our U.S. retail distribution network as the number of active Boss Revolution retailers and customers increased, partially offset by continued declines in sales of traditional disposable calling cards and retail sales in Europe. We launched Boss Revolution in the United Kingdom and Spain during fiscal 2012 and in Germany, Hong Kong, Singapore and Australia in the first half of fiscal 2013. In fiscal 2014, we launched Boss Revolution in Canada. Boss Revolution continues to attract new customers, and we are working to sustain that momentum by increasing our sales and marketing efforts in fiscal 2015. In fiscal 2014, we acquired the assets of an over-the-top messaging provider, and we have begun integrating its messaging service into our Boss Revolution calling app. We expect to introduce messaging within the app in the first half of calendar 2015. Retail Communications revenue comprised 43.1%, 41.3% and 37.2% of Telecom Platform Services' revenue in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Wholesale Termination Services minutes of use decreased 14.2% and increased 4.7% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year. The decrease in fiscal 2014 compared to fiscal 2013 was primarily due to a significant decrease in minutes of use from our web-based prepaid termination service. The increase in fiscal 2013 compared to 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 carriers. Wholesale Termination Services' revenues declined 2.3% and 4.0% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year as a result of an industry-wide increase in termination rates to certain key destinations in Southern Asia which resulted in a decline in revenues as well as direct cost of revenues. Wholesale Termination Services revenue comprised 41.6%, 43.3% and 48.5% of Telecom Platform Services' revenue in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Payment Services' revenues grew 4.6% and 25.2% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year. The increase was driven by growth in sales of our international airtime top-up offerings. Future growth will be, in large part, contingent upon our ability to enter into new international airtime top-up partnerships with wireless providers, as well as continued growth of international airtime top-up volume within existing relationships and the introduction of new payment offerings through the Boss Revolution payment platform. In the third quarter of fiscal 2013, we launched our domestic bill payment services in partnership with a licensed domestic bill pay provider. In addition, in fiscal 2014, we initiated an international money transfer service on a limited basis over our Boss Revolution payment platform. As of July 31, 2014, we had money transmitter licenses in 45 of the 47 states where they are required as well as in Puerto Rico and Washington, D.C. Payment Services revenue comprised 12.5%, 12.2% and 10.5% of Telecom Platform Services' revenue in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. 31 Hosted Platform Solutions' revenues declined 10.0% and 11.9% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year. The decline in fiscal 2014 compared to fiscal 2013 was mostly due to a decrease in revenue from managed services, as well as a decrease in revenues from our cable telephony business, which is in harvest mode. The decline in fiscal 2013 compared to fiscal 2012 was due to a decrease in revenue from our cable telephony business and from call shops outside the U.S., which decreased due to price competition and migration to alternative wireless and IP-based services. Hosted Platform Solutions revenue comprised 2.8%, 3.2% and 3.8% of Telecom Platform Services' revenues in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Hosted Platform Solutions minutes of use decreased 9.7% and 13.9% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year. In fiscal 2014 compared to fiscal 2013, the decrease was primarily a result of the decline in minutes of use from managed services, and in fiscal 2013 compared to fiscal 2012, the decrease was due to a decline in minutes of use from call shops, managed services 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 24.1% and 24.8% in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year, 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 6,200 as of July 31, 2014 compared to 7,800 as of July 31, 2013 and 10,500 as of July 31, 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 28,500 as of July 31, 2014 compared to 35,700 as of July 31, 2013 and 45,200 as of July 31, 2012. We anticipate that Consumer Phone Services' customer base and revenues will continue to decline. 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. (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Direct cost of revenues Telecom Platform Services $ 1,358.6 $ 1,347.0 $ 1,259.1 $ 11.6 0.9 % $ 87.9 7.0 % Consumer Phone Services 4.9 6.3 8.6 (1.4 ) (21.7 ) (2.3 ) (27.0 ) Total direct cost of revenues $ 1,363.5 $ 1,353.3 $ 1,267.7 $ 10.2 0.8 % $ 85.6 6.8 % 2014 change 2013 change Year ended July 31, 2014 2013 2012 from 2013 from 2012 Direct cost of revenues as a percentage of revenues Telecom Platform Services 84.1 % 84.8 % 85.2 % (0.7 )% (0.4 )% Consumer Phone Services 44.6 43.3 44.6 1.3 (1.3 ) Total 83.8 % 84.4 % 84.7 % (0.6 )% (0.3 )% Direct Cost of Revenues. Direct cost of revenues in Telecom Platform Services increased in fiscal 2014 compared to fiscal 2013 mainly due to the similar trends in Telecom Platform Services' revenues. Direct cost of revenues in Telecom Platform Services increased in fiscal 2013 compared to 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. Direct cost of revenues as a percentage of revenues in Telecom Platform Services decreased 70 basis points and 40 basis points in fiscal 2014 and fiscal 2013, respectively, compared to the prior fiscal year, as a result of the increases in average revenue per minute in both Retail Communications and Wholesale Termination Services in fiscal 2014 compared to fiscal 2013, and in Retail Communications' average revenue per minute in fiscal 2013 compared to fiscal 2012. In addition, the decreases reflect the positive effect of the overall revenue mix, as the relatively higher-margin Retail Communications business comprised a larger share of Telecom Platform Services total revenue compared to Wholesale Termination Services. Direct cost of revenues in our Consumer Phone Services segment decreased in fiscal 2014 and fiscal 2013 compared to the prior fiscal year primarily as a result of the declining customer base. (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Selling, general and administrative expenses Telecom Platform Services $ 198.8 $ 189.3 $ 182.6 $ 9.5 5.0 % $ 6.7 3.7 % Consumer Phone Services 4.3 6.4 6.6 (2.1 ) (32.8 ) (0.2 ) (3.3 ) Total selling, general and administrative expenses $ 203.1 $ 195.7 $ 189.2 $ 7.4 3.8 % $ 6.5 3.4 % 32 Selling, General and Administrative. The increase in selling, general and administrative expenses in our Telecom Platform Services segment in fiscal 2014 and fiscal 2013 compared to the prior fiscal year was partially due to increases in employee compensation. We expanded our retail direct sales force in the U.S., which results in more control over our product distribution and enhances our relationships with retailers. The increases in employee compensation were also due to annual payroll increases for a larger workforce. The increase in selling, general and administrative expenses in our Telecom Platform Services segment was also due to the increase in third-party transaction processing costs and internal sales commissions, which are variable costs that closely track revenue performance. Third-party transaction processing costs 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. Internal sales commissions grew as a direct result of our effort to grow and strengthen our retail direct sales force in the U.S. External legal fees significantly decreased in fiscal 2014 compared to fiscal 2013 since certain legal matters were resolved. Telecom Platform Services' marketing and advertising costs increased in fiscal 2014 compared to fiscal 2013, and decreased in fiscal 2013 compared to fiscal 2012, primarily due to changes in costs incurred in the U.S. for our Retail Communications offerings. As a percentage of Telecom Platform Services' revenues, Telecom Platform Services' selling, general and administrative expenses was 12.3%, 11.9% and 12.4% in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Selling, general and administrative expenses in our Consumer Phone Services segment decreased in fiscal 2014 and fiscal 2013 compared to the prior fiscal year as the cost structure for this segment continued to be right-sized to the needs of its declining revenue base. (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Depreciation and amortization Telecom Platform Services $ 13.8 $ 12.3 $ 14.2 $ 1.5 11.6 % $ (1.9 ) (13.2 )% Consumer Phone Services - - - - - - - Total depreciation and amortization $ 13.8 $ 12.3 $ 14.2 $ 1.5 11.6 % $ (1.9 ) (13.2 )% Depreciation and Amortization. The increase in depreciation and amortization expense in fiscal 2014 compared to fiscal 2013 was due to increases in depreciation of capitalized costs of consultants and employees developing internal use software. The decrease in depreciation and amortization expense in fiscal 2013 compared to fiscal 2012 was due to lower levels of capital expenditures and more of our property, plant and equipment becoming fully depreciated. In addition, depreciation expense in fiscal 2013 was reduced by $0.7 million due to an adjustment in our estimate of capital expenditures subject to sales and use tax as a result of an audit. (in millions) Year ended July 31, 2014 2013 2012 Telecom Platform Services-Other operating gains (losses), net Gains (losses) related to legal matters, net $ 0.7 $ 9.3 $ (6.8 ) Loss on settlement of litigation (a) - - (11.0 ) Gain on settlement of claim (b) - - 1.8 Total other operating gains (losses), net $ 0.7 $ 9.3 $ (16.0 ) Other Operating Gains (Losses), net. Our Telecom Platform Services segment's income from operations in fiscal 2012 included other operating (losses) gains, net as follows: (a) On October 12, 2011, we entered into a binding term sheet with T-Mobile USA, Inc. 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, we paid T-Mobile $10 million. We incurred legal fees of $1.0 million in fiscal 2012 in connection with this matter. (b) On January 17, 2012, we received $1.8 million from Broadstripe, LLC in settlement of our claim stemming from Broadstripe, LLC's rejection of its telephony services agreements with us upon the confirmation of Broadstripe, LLC's bankruptcy plan and closing of its bankruptcy sale. (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Income from operations Telecom Platform Services $ 45.1 $ 48.7 $ 5.9 $ (3.6 ) (7.4 )% $ 42.8 723.3 % Consumer Phone Services 1.8 1.8 4.1 - (1.5 ) (2.3 ) (55.1 ) Total income from operations $ 46.9 $ 50.5 $ 10.0 $ (3.6 ) (7.2 )% $ 40.5 406.3 % 33 Zedge (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Revenues $ 6.5 $ 5.8 $ 3.8 $ 0.7 12.5 % $ 2.0 53.2 % Direct cost of revenues 0.9 0.9 0.7 - 11.4 0.2 15.3 Selling, general and administrative 4.3 3.8 2.6 0.5 12.7 1.2 44.2 Depreciation 1.0 0.8 0.7 0.2 21.2 0.1 22.3 Income (loss) from operations $ 0.3 $ 0.3 $ (0.2 ) $ - (7.7 )% $ 0.5 237.4 % Revenues. Zedge's revenues are entirely derived from selling its advertising inventory across its Android and iOS apps and websites. Zedge launched its Android app in fiscal 2010 and its iOS app in fiscal 2013. Zedge's revenues increased in fiscal 2014 compared to fiscal 2013 as a result of higher app usage and higher value ad units on its Android app as well as the introduction of advertising on its iOS app. In fiscal 2014, Zedge's revenues were primarily from the Android and iOS apps, which totaled 84% of Zedge's revenues in fiscal 2014 compared to 64% in fiscal 2013. Revenue from desktop and mobile websites, as expected, declined compared to prior fiscal years. Zedge's revenues increased in fiscal 2013 compared to fiscal 2012 due to user base growth, its ability to optimize ad inventory performance and its direct distribution relationships with a number of premium game publishers. The growth in Total Installs and Active Installs for the Zedge Android and iOS apps are presented in the table below. "Total Installs" is the number of times the app has been downloaded. "Active Installs" is the number of unique active devices on which the application is currently installed and excludes any devices where the application was uninstalled or any devices that are no longer active. This increase in users was a primary driver of advertising revenue growth. (in millions) July 31, 2014 2013 2012 Total Installs (Android and iOS) 111 72 38 Active Installs (Android and iOS) 49 31 19 Direct Cost of Revenues. Direct cost of revenues increased in fiscal 2014 and fiscal 2013 compared to the prior fiscal year primarily as a result of the increases in users. The increase in direct cost of revenues in fiscal 2014 compared to fiscal 2013 was lessened by a reduction in the rate of increase of certain direct costs as a result of renegotiated hosting and ad serving contracts. Direct cost of revenues as a percentage of revenues was 14.5%, 14.7% and 19.5% in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. Selling, General and Administrative. The increase in selling, general and administrative expenses in fiscal 2014 compared to fiscal 2013 was due to increases in consulting expense related to business development, non-routine audit fees, and employee recruiting expense. The increase in selling, general and administrative expenses in fiscal 2013 compared to fiscal 2012 was primarily due to increases in developer headcount, which increased employee payroll. In addition, bonus expense increased in fiscal 2013 compared to fiscal 2012. Depreciation. The increase in depreciation expense in fiscal 2014 and fiscal 2013 compared to the prior fiscal year was due to increases in depreciation of capitalized payroll costs of employees working on internal use software related to the iOS app and the Android app. All Other (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Revenues $ 18.4 $ 12.2 $ 5.4 $ 6.2 50.7 % $ 6.8 125.5 % Direct cost of revenues (2.8 ) (1.4 ) (0.9 ) (1.4 ) (97.8 ) (0.5 ) (52.4 ) Selling, general and administrative (6.7 ) (5.0 ) (2.1 ) (1.7 ) (33.8 ) (2.9 ) (142.1 ) Depreciation (1.5 ) (1.6 ) (1.5 ) 0.1 7.7 (0.1 ) (10.7 ) Research and development (10.0 ) (7.2 ) (4.6 ) (2.8 ) (39.8 ) (2.6 ) (56.8 ) Impairment of building and improvements - (4.4 ) - 4.4 100.0 (4.4 ) nm Other operating gain 0.6 - - 0.6 nm - - Loss from operations $ (2.0 ) $ (7.4 ) $ (3.7 ) $ 5.4 72.4 % $ (3.7 ) (102.6 )% nm-not meaningful 34 Impairment of Building and Improvements. In fiscal 2013, we recorded an impairment charge of $4.4 million for the building and improvements that we own at 520 Broad Street, Newark, New Jersey. The following facts and circumstances indicated that the fair value of the building and improvements may be less than their carrying value at that time: (1) the building was not occupied and, at the time, we did not expect to occupy it, (2) economic uncertainty and sluggish leasing activity stalled a recovery of the real estate market in Newark, (3) there were no potential tenants, (4) no sale of the building had been completed and there were no other likely buyers, (5) the building would be expensive to redevelop and (6) the building was expected to remain vacant for the foreseeable future. We determined the fair value of the building and improvements based on estimates of an owner/user's market rental rate net of costs of improvements and tenant work as well as the estimated value to an investor/developer after deducting costs of improvements and costs to achieve full occupancy. At both July 31, 2014 and 2013, the carrying value of the land, building and improvements at 520 Broad Street after the impairment charge was $37.7 million. Other Operating Gain. In fiscal 2014, we received proceeds from insurance of $0.6 million related to water damage to portions of our building and improvements at 520 Broad Street, Newark, New Jersey. The damage occurred in a prior period. We recorded a gain of $0.6 million from this insurance claim. Currently, we report aggregate results for all of our operating businesses other than IDT Telecom and Zedge in All Other. Following is the results of operations in fiscal 2014, fiscal 2013 and fiscal 2012 of Fabrix, which was included in All Other until it was sold in October 2014: Fabrix (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Revenues $ 16.6 $ 10.6 $ 3.6 $ 6.0 57.4 % $ 7.0 192.8 % Direct cost of revenues 2.8 1.4 0.9 1.4 97.8 0.5 52.4 Selling, general and administrative 4.1 3.1 0.9 1.0 36.9 2.2 234.8 Depreciation 0.4 0.3 0.2 0.1 18.3 0.1 102.5 Research and development 10.0 7.2 4.6 2.8 39.8 2.6 56.8 Loss from operations $ (0.7 ) $ (1.4 ) $ (3.0 ) $ 0.7 46.8 % $ 1.6 53.1 % Revenue. Fabrix was our majority-owned venture that developed and licensed a proprietary video software platform optimized for cost effective cloud-based video storage, high throughput streaming and intelligent content distribution. This software was marketed to cable and telecommunications operators, Internet service providers and web based video portals that require deep video storage capabilities or offer unicast television applications including video-on-demand, multi-screen delivery, cloud storage, time/place shifting and remote DVR storage capabilities. In the first quarter of fiscal 2011, Fabrix successfully deployed its deep video storage product with a North American tier-1 operator. In addition, the major American cable operator that licensed the Fabrix software in August 2010 to empower its cloud-based DVR offering continued to purchase additional product. Finally, in the third quarter of fiscal 2013, Fabrix commenced software deliveries to a major European operator. In fiscal 2014, fiscal 2013 and fiscal 2012, Fabrix received cash from these sales of $13.4 million, $16.0 million and $8.0 million, respectively. Fabrix generally recognized revenue for its software licenses and support from the date on which delivered orders were accepted by the customer over the term of the related software support agreements. Corporate (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % General and administrative expenses $ 14.8 $ 13.9 $ 13.0 $ 0.9 6.4 % $ 0.9 7.0 % Depreciation and amortization - 0.1 0.3 (0.1 ) (68.6 ) (0.2 ) (63.0 ) Other operating loss (gain) 0.5 - (0.1 ) 0.5 nm 0.1 100.0 Loss from operations $ 15.3 $ 14.0 $ 13.2 $ 1.3 9.2 % $ 0.8 6.4 % nm-not meaningful Corporate costs include 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. General and Administrative. The increase in Corporate general and administrative expenses in fiscal 2014 compared to fiscal 2013 was primarily due to increases in accrued charitable contributions and legal fees. In fiscal 2014 and fiscal 2013, we accrued $1.4 million and $0.9 million, respectively, for contributions to the IDT Charitable Foundation. The increase in Corporate general and administrative expenses in fiscal 2013 compared to fiscal 2012 was primarily due to an increase in charitable contributions, as well as increases in payroll and related expenses and stock-based compensation expense. Corporate general and administrative expenses in fiscal 2014, fiscal 2013 and fiscal 2012 are net of amounts billed pursuant to the Transition Services Agreement to our former subsidiary Genie, and Corporate general and administrative expenses in fiscal 2014 are net of fees charged to Straight Path pursuant to its Transition Services Agreement. The fees charged to Genie, net of amounts charged by Genie to us, were $2.9 million, $3.3 million and $2.0 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. The fees charged to Straight Path were $0.8 million in fiscal 2014. As a percentage of our total consolidated revenues from continuing operations, Corporate general and administrative expenses was unchanged at 0.9% in each of fiscal 2014, fiscal 2013 and fiscal 2012. 35 Consolidated The following is a discussion of our consolidated stock-based compensation expense, and our consolidated income and expense line items below income (loss) from operations. Stock-Based Compensation Expense. Stock-based compensation expense included in consolidated selling, general and administrative expenses was $5.4 million, $5.9 million and $3.3 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. At July 31, 2014, unrecognized compensation cost related to non-vested stock-based compensation, including stock options and restricted stock, was an aggregate of $5.0 million. The unrecognized compensation cost is expected to be recognized over the remaining vesting period, of which $3.1 million is expected to be recognized in fiscal 2015, $1.1 million is expected to be recognized in fiscal 2016, $0.4 million is expected to be recognized in fiscal 2017, $0.2 million is expected to be recognized in fiscal 2018, and $0.2 million is expected to be recognized in fiscal 2019. (in millions) 2014 change from 2013 2013 change from 2012 Year ended July 31, 2014 2013 2012 $ % $ % Income (loss) from operations $ 29.8 $ 29.4 $ (7.1 ) $ 0.4 1.5 % $ 36.5 514.2 % Interest expense, net (0.2 ) (0.8 ) (3.0 ) 0.6 82.0 2.2 72.4 Other (expense) income, net (4.7 ) 5.4 (1.8 ) (10.1 ) (187.3 ) 7.2 404.6 (Provision for) benefit from income taxes (4.0 ) (15.9 ) 42.8 11.9 74.9 (58.7 ) (137.1 ) Income from continuing operations 21.0 18.1 30.9 2.9 16.2 (12.8 ) (41.6 ) Discontinued operations, net of tax - (4.7 ) 7.8 4.7 100.0 (12.5 ) (159.0 ) Net income 21.0 13.4 38.7 7.6 56.3 (25.3 ) (65.3 ) Net income attributable to noncontrolling interests (2.2 ) (1.8 ) (0.1 ) (0.4 ) (21.2 ) (1.7 ) nm Net income attributable to IDT Corporation $ 18.8 $ 11.6 $ 38.6 $ 7.2 61.8 % $ (27.0 ) (70.0 )% nm-not meaningful Interest Expense, net. The decrease in interest expense, net in fiscal 2014 compared to fiscal 2013 was due to a decrease in interest expense and an increase in interest income. The decrease in interest expense, net in fiscal 2013 compared to fiscal 2012 was due to a decrease in interest expense, partially offset by a decrease in interest income. Other (Expense) Income, net.Other (expense) income, net consists of the following: (in millions) Year ended July 31, 2014 2013 2012 Foreign currency transaction (losses) gains $ (5.9 ) $ 2.5 $ (2.9 ) Gain on investments 1.2 2.7 1.2 Gain on modification and early termination of loan payable - 0.2 - Other - - (0.1 ) TOTAL $ (4.7 ) $ 5.4 $ (1.8 ) On April 30, 2013, the holder of the note payable secured by the mortgage on our building located at 520 Broad Street, Newark, New Jersey entered into an agreement with us to settle all of our disputes. In connection with this agreement, on May 1, 2013, we paid them $21.1 million and they released us from the note and discharged the mortgage. In the fourth quarter of fiscal 2013, we recognized a gain of $0.2 million on the modification and early terminationof the note payable. Income Taxes. The decline in income tax expense in fiscal 2014 compared to fiscal 2013 was primarily due to the decrease in income from continuing operations before income taxes in fiscal 2014 compared to fiscal 2013. The benefit from income taxes in fiscal 2012 was primarily due to the $36.9 million reversal of a portion of our valuation allowance in the United States. In fiscal 2012, we determined that it was more likely than not that a portion of our deferred income tax assets would be realized, therefore the valuation allowance related to those assets was reversed. We based our determination on a projection of future U.S. income and took into consideration the historical U.S. performance and decided a partial release of the U.S. valuation that relates to the core businesses was warranted in that period. Assumptions regarding future taxable income require significant analysis and judgment. This analysis included financial forecasts based on historical performance of the core business and continuance of doing business in a jurisdiction in which losses are incurred. Based on our projections, we expected that we would generate future taxable income over the next five years in the U.S. jurisdiction and will begin utilizing our net operating loss carryover through this period. Accordingly, we concluded that a portion of our U.S. jurisdiction core business assets did not require a full valuation allowance. In fiscal 2013 and fiscal 2014, we updated the analysis and concluded that the valuation allowance related to our core U.S. business should be maintained at the current level and will be reevaluated as warranted. In addition, in fiscal 2014, we determined that our valuation allowance on the losses of IDT Global, a U.K. subsidiary, were no longer required due to an internal reorganization that generated income and a projection that the income would continue. We recorded a benefit from income taxes of $4.1 million from the full recognition of the IDT Global deferredtax assets. 36 We did not release any of the valuation allowances that related to our former Straight Path Spectrum business since it was not part of the main tax consolidated group and the portion of the Net2Phone acquired net operating loss that is subject to Internal Revenue Code Section 382 limitations. We did not release any of the valuation allowances related to our foreign operations in fiscal 2013 or fiscal 2012 as it was not more likely than not that the assets will be utilized based upon the earnings history and the profitability projections. In September 2013, the IRS and the Department of the Treasury issued final regulations regarding when costs incurred to acquire, produce or improve tangible property must be capitalized or may be deducted. The IRS and the Department of the Treasury have also separately proposed regulations about disposal of depreciable property. The changes will apply to taxable years beginning on or after January 1, 2014. A taxpayer may choose to apply the regulations to taxable years beginning on or after January 1, 2012. We are still analyzing the effect of these new regulations and no decision has been made as to an early adoption. We do not expect a material impact to our results of operations, financial position or cash flows if we adopt these regulations early. Discontinued Operations, net of tax. The loss from discontinued operations, net of tax in fiscal 2013 was due to Straight Path's net loss of $4.6 million. Discontinued operations, net of tax in fiscal 2012 included Genie's net income of $1.0 million for the period from August 1, 2011 through October 28, 2011, the date that we completed the Genie Spin-Off, plus Straight Path's net income of $4.8 million in fiscal 2012. In addition, discontinued operations, net of tax in fiscal 2012 included a gain of $2.0 million related to the sale of IDT Entertainment to Liberty Media in the first quarter of fiscal 2007. In September 2011, we and Liberty Media executed an agreement to settle and resolve all claims related to the additional consideration that we were eligible to receive for IDT Entertainment based upon any appreciation in its value over the five-year period that ended in August 2011, as well as certain other disputes and claims. Liberty Media paid us $2.0 million in September 2011 in consideration for the settlement and related releases. Net Income Attributable to Noncontrolling Interests. The increase in the net income attributable to noncontrolling interests in fiscal 2014 compared to fiscal 2013 was due to an increase in the net income attributable to noncontrolling interests in certain IDT Telecom subsidiaries, the Straight Path Spin-Off which reduced the net loss attributable to noncontrolling interests, and a decrease in the net loss attributable to noncontrolling interests in Fabrix. The increase in the net income attributable to noncontrolling interests in fiscal 2013 compared to fiscal 2012 was primarily due to the deconsolidation of Genie on October 28, 2011, as well as the increase in the net income attributable to noncontrolling interests in certain IDT Telecom subsidiaries and the decrease in the net loss attributable to noncontrolling interests in Fabrix, partially offset by the increase in the net loss attributable to noncontrolling interests in Straight Path IP Group. LIQUIDITY AND CAPITAL RESOURCES General We currently expect our cash from operations in fiscal 2015 and the balance of cash, cash equivalents and marketable securities that we held as of July 31, 2014 to be sufficient to meet our currently anticipated working capital and capital expenditure requirements during fiscal 2015. As of July 31, 2014, we had cash, cash equivalents and marketable securities of $166.7 million and a deficit in working capital (current liabilities in excess of current assets) of $29.1 million. As of July 31, 2014, we also had $9.5 million in investments in hedge funds, of which $0.1 million was included in "Other current assets" and $9.4 million was included in "Investments" in our consolidated balance sheet. On October 8, 2014, we completed the sale of our interests in Fabrix to Ericsson. The final sale price for 100% of the shares in Fabrix was $95 million in cash, excluding transaction costs and working capital and other adjustments. We owned approximately 78% of Fabrix on a fully diluted basis. Our share of the sale price, net of transaction costs, is expected to be approximately $73 million in cash. We and the other shareholders have placed $13 million of our proceeds in escrow for the resolution of post-closing claims that may arise. Any unclaimed escrow balance will be released in two tranches over a period of18 months. As of July 31, 2014, we had aggregate restricted cash and cash equivalents of $68.5 million, of which $65.7 million was included in "Restricted cash and cash equivalents-short-term" and $2.8 million was included in "Restricted cash and cash equivalents-long-term" in our consolidated balance sheet. Our restricted cash and cash equivalents include, among other amounts, restricted balances pursuant to banking regulatory and other requirements and customer deposits related to IDT Financial Services, our Gibraltar-based bank. We expect customer deposits and the offsetting restricted cash and cash equivalents will continue to increase in fiscal 2015. IDT Payment Services and IDT Financial Services set aside certain cash balances in accordance with banking regulations, credit card issuer requirements or license compliance. The balances are not legally restricted, however we treat these balances as substantially restricted and unavailable for other purposes. At July 31, 2014, "Cash and cash equivalents" in our consolidated balance sheet included an aggregate of $12.9 million set aside by IDT Payment Services and IDT Financial Services that was unavailable for other purposes. We have not recorded U.S. income tax expense for foreign earnings, as such earnings are permanently reinvested outside the United States. The cumulative undistributed foreign earnings are included in accumulated deficit in our consolidated balance sheets, and consisted of approximately $270 million at July 31, 2014. Upon distribution of these foreign earnings to our domestic entities, we may be subject to U.S. income taxes and withholding of foreign taxes, however, it is not practicable to determine the amount, if any, which wouldbe paid. (in millions) Year ended July 31, 2014 2013 2012 Cash flows provided by (used in) Operating activities $ 45.7 $ 57.2 $ 34.5 Investing activities (18.9 ) (25.6 ) (4.4 ) Financing activities (25.4 ) (36.4 ) (125.6 ) Effect of exchange rate changes on cash and cash equivalents 0.8 1.2 (2.3 ) Increase (decrease) in cash and cash equivalents from continuing operations 2.2 (3.6 ) (97.8 ) Discontinued operations - (3.0 ) 3.0 Increase (decrease) in cash and cash equivalents $ 2.2 $ (6.6 ) $ (94.8 ) 37 Operating Activities Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. In fiscal 2014, fiscal 2013 and fiscal 2012, Fabrix received $13.4 million, $16.0 million and $8.0 million, respectively, in cash from sales of software licenses and support services. Our Separation and Distribution Agreement with Straight Path includes, among other things, our obligation to reimburse Straight Path for the payment of any liabilities of Straight Path arising or related to the period prior to the Straight Path Spin-Off. In fiscal 2014, we paid $1.0 million in connection with this obligation. At July 31, 2014, our estimated liability for this obligation was $1.9 million. On October 12, 2011, we entered into a binding term sheet with 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, we paid T-Mobile $10 million. We incurred legal fees of $1.0 million in fiscal 2012 in connection with this matter. Investing Activities Our capital expenditures were $17.0 million in fiscal 2014 compared to $14.5 million in fiscal 2013 and $10.8 million in fiscal 2012. We currently anticipate that total capital expenditures in fiscal 2015 will be approximately $26.5 million, which includes expenditures for the renovations of the first four floors of our building located at 520 Broad Street, Newark, New Jersey. We expect to fund our capital expenditures with our net cash provided by operating activities and cash, cash equivalents and marketable securities on hand. In fiscal 2013, we made a deposit of $1.0 million for the purchase of a leasehold interest in an office building in New Jersey. In fiscal 2014, fiscal 2013 and fiscal 2012, we used cash of $0.2 million, $1.2 million and nil, respectively, for an acquisition and additional investments. In fiscal 2014, we acquired the assets of an over-the-top messaging provider, and we have begun integrating its messaging service into our wholesale and retail offerings. We received $1.0 million, $0.1 million and $3.2 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively, from the redemption of certain of our investments, including investments in hedge funds. Proceeds from insurance of $0.6 million in fiscal 2014 related to water damage in our building located at 520 Broad Street, Newark, New Jersey, that occurred in a prior period. We recorded a gain of $0.6 million from this insurance claim in fiscal 2014. In fiscal 2014 and fiscal 2013, we used cash of $20.7 million and $11.4 million, respectively, to purchase marketable securities. We did not purchase any marketable securities in fiscal 2012. Proceeds from maturities and sales of marketable securities were $17.3 million and $1.7 million in fiscal 2014 and fiscal 2013, respectively. There were no maturities or sales of marketable securities in fiscal 2012. We received cash of $3.3 million in fiscal 2012 from the maturity of certificates of deposit. Financing Activities In July 2013, cash and cash equivalents held by Straight Path and its subsidiaries of $15.0 million were deconsolidated as a result of the Straight Path Spin-Off. In October 2011, cash and cash equivalents held by Genie and its subsidiaries of $92.4 million were deconsolidated as a result of the Genie Spin-Off. Subsequent to the Genie Spin-Off, in November and December 2011, we funded Genie with the remaining $11.9 million of our commitment. In fiscal 2014, we paid aggregate cash dividends of $0.59 per share on our Class A common stock and Class B common stock, or $13.6 million in total. In fiscal 2013, we paid aggregate cash dividends of $0.75 per share on our Class A common stock and Class B common stock, or $17.1 million in total. In fiscal 2012, we paid aggregate cash dividends of $0.66 per share on our Class A common stock and Class B common stock, or $15.0 million in total. On October 3, 2014, we paid a dividend of $0.17 per share for the fourth quarter of fiscal 2014 to holders of record of our Class A common stock and Class B common stock as of the close of business on September 29, 2014. We distributed cash of $1.9 million, $2.2 million and $1.6 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively, to the noncontrolling interests in certain of our subsidiaries. In August 2013, both Fabrix and a wholly-owned subsidiary of ours purchased shares of Fabrix for aggregate cash of $1.1 million. The shares were purchased from holders of noncontrolling interests in Fabrix representing 2.8% of the equity in Fabrix, which increased our ownership in Fabrix to 88.4%. In December 2012, a wholly-owned subsidiary of ours purchased shares of 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. On November 21, 2012, our subsidiary, 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%. On November 15, 2011, 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 11.1% from 11%. One of the limited partners in Shaman II, L.P. is a former employee of ours. We received proceeds from the exercise of our stock options of $0.6 million in fiscal 2014 and $0.9 million in fiscal 2013. No options were exercised in fiscal 2012. 38 We repaid capital lease obligations of $1.8 million in fiscal 2012. We had no capital lease obligations in fiscal 2014 or fiscal 2013. Our 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 January 31, 2015. At July 31, 2014, there was $13.0 million outstanding under the facility at an interest rate of 1.65% per annum. In August 2014, we repaid the $13.0 million loan payable. In fiscal 2014 and fiscal 2013, we borrowed $56.0 million and $21.9 million, respectively, under the facility, and we repaid $64.1 million and $8.0 million, respectively. We intend to borrow under the facility from time to time. 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 $90.0 million. At July 31, 2014, there were no amounts 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 $73.7 million. Repayments of other borrowings were $0.3 million, $21.3 million and $0.3 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively. On April 30, 2013, the holder of the note payable secured by the mortgage on our building located at 520 Broad Street, Newark, New Jersey entered into an agreement with us to settle all of our disputes. In connection with this agreement, on May 1, 2013, we paid them $21.1 million and they released us from the note and discharged the mortgage. In fiscal 2014, fiscal 2013 and fiscal 2012, we paid $1.0 million, $0.3 million and $0.2 million, respectively to repurchase shares of Class B common stock that were tendered by employees of ours to satisfy the employees' tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares are repurchased by us based on their fair market value on the trading day immediately prior to the vesting date. We have a stock repurchase program for the repurchase of up to an aggregate of 8.3 million shares of our Class B common stock. There were no repurchases in fiscal 2014. In fiscal 2013, we repurchased 77,843 shares of our Class B common stock for an aggregate purchase price of $0.8 million. In fiscal 2012, we repurchased 0.3 million shares of our Class B common stock for an aggregate purchase price of $2.6 million. As of July 31, 2014, 5.1 million shares remained available for repurchase under the stock repurchase program. Changes in Trade Accounts Receivable, Allowance For Doubtful Accounts and Deferred Revenue Gross trade accounts receivable increased to $80.8 million at July 31, 2014 from $78.2 million at July 31, 2013 primarily due to a $2.2 million increase in Fabrix' gross trade accounts receivable balance from sales in June and July 2014. The allowance for doubtful accounts as a percentage of gross trade accounts receivable was 14.2% at July 31, 2014 and 16.7% at July 31, 2013 as a result of the decline in the allowance for doubtful accounts at IDT Telecom and an increase in the gross trade accounts receivable balance at Fabrix. Deferred revenue as a percentage of total revenues varies from period to period depending on the mix and the timing of revenues. Deferred revenue arises from IDT Telecom's sales of calling cards and other prepaid products and from Fabrix's sales of software licenses. Deferred revenue increased to $101.2 million at July 31, 2014 from $91.2 million at July 31, 2013 primarily as a result of a $8.4 million increase in IDT Telecom's deferred revenues, primarily in the U.S., and a $1.5 million increase in deferred revenues from sales of Fabrix's software licenses and support services. CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS The following tables quantify our future contractual obligations and commercial commitments as of July 31, 2014: CONTRACTUAL OBLIGATIONS Payments Due by Period Less than (in millions) Total 1 year 1-3 years 4-5 years After 5 years Operating leases $ 7.3 $ 2.8 $ 2.5 $ 1.8 $ 0.2Purchase commitments 2.3 2.3 - - - Revolving credit loan and notes payable (including interest) 20.1 13.7 6.4 - - TOTAL CONTRACTUAL OBLIGATIONS $ 29.7 $ 18.8 $ 8.9 $ 1.8 $ 0.2 39 OTHER COMMERCIAL COMMITMENTS Payments Due by Period Less than (in millions) Total 1 year 1-3years 4-5 years After 5 years Standby letters of credit (1) $ 3.7 $ 0.9 $ 2.8 $ - $ - (1) The above table does not include an aggregate of $10.0 million in performance bonds due to the uncertainty of the amount and/or timing of any such payments. OFF-BALANCE SHEET ARRANGEMENTS We do not have any "off-balance sheet arrangements," as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following. In connection with our spin-off of CTM Media Holdings, Inc., or CTM, in September 2009, we and CTM entered into a Tax Separation Agreement, dated as of September 14, 2009, to provide for certain tax matters including the assignment of responsibility for the preparation and filing of tax returns, the payment of and indemnification for taxes, entitlement to tax refunds and the prosecution and defense of any tax controversies. Pursuant to this agreement, among other things, we indemnify CTM from all liability for taxes of CTM and its subsidiaries for periods ending on or before September 14, 2009, and CTM indemnifies us from all liability for taxes of CTM and its subsidiaries accruing after September 14, 2009. In connection with the Genie Spin-Off in October 2011, we and Genie entered into various agreements prior to the Genie Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with Genie after the Genie Spin-Off, and a Tax Separation Agreement, 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 Genie Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to the Separation and Distribution Agreement, among other things, we indemnify Genie and Genie indemnifies us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation Agreement, among other things, we indemnify Genie from all liability for taxes of ours with respect to any taxable period, and Genie indemnifies us from all liability for taxes of Genie and its subsidiaries with respect to any taxable period, including, without limitation, the ongoing tax audits related to Genie's business. In connection with the Straight Path Spin-Off in July 2013, we and Straight Path entered into various agreements prior to the Straight Path Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with Straight Path after the Straight Path Spin-Off, and a Tax Separation Agreement, which sets forth the responsibilities of us and Straight Path with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the Straight Path Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to the Separation and Distribution Agreement, the Company indemnifies Straight Path and Straight Path indemnifies the Company for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation Agreement, the Company indemnifies Straight Path from all liability for taxes of Straight Path or any of its subsidiaries or relating to the Straight Path business with respect to taxable periods ending on or before the Straight Path Spin-Off, from all liability for taxes of the Company, other than Straight Path and its subsidiaries, for any taxable period, and from all liability for taxes due to the Straight Path Spin-Off. 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 July 31, 2014, we had aggregate performance bonds of $10.0 million outstanding. |