Commitments and Contingencies

12 Months Ended

Jul. 31, 2012

Commitments and Contingencies

Note 14—Commitments and Contingencies

Purchase Commitments

The Company had purchase commitments of $1.6 million as of July 31, 2012.

Tax Audits

The Company is subject to audits in various jurisdictions for various taxes, including utility excise tax, sales and use tax, communications services tax, gross receipts tax and property tax. As of July 31, 2012, the Company had accrued an aggregate of $2.6 million related to certain of these audits. The following is a summary of the more significant ongoing audits:

• In December 2010, the New Jersey Division of Taxation filed a Certificate of Debt related to the sales and use tax audit of IDT Domestic Telecom, Inc. that resulted in the entry of a judgment in the amount of $2.1 million, which allows the Division of Taxation to place a lien or levy on the Company’s assets.

• In January 2011 and May 2011, the Company received Notices of Proposed Tax Adjustments from the New York City Finance Department related to the utility excise tax audit of IDT Telecom for the period from January 2004 through December 2009 that included aggregate assessments of tax, interest and penalties of $2.5 million. In February 2012, the Company agreed to resolve these matters and paid $0.9 million. In addition, in April 2012, the Company paid a nominal amount to settle an audit assessment for the period from January 2010 through December 2011.

• In March 2011, the Company consented to audit adjustments of its New York State utility excise tax for 2004 through 2009 and paid $1.3 million. The Company had previously accrued $1.5 million for these audit adjustments.

• In May 2011, the Company received a Notice of Proposed Assessment from the Florida Department of Revenue related to communications services tax that included an aggregate assessment of tax and interest of $2.7 million. The Company’s reasonably possible liability for this assessment in excess of the amount accrued is a range from nil to $2.4 million.

At July 31, 2012, the Company has accrued for the estimated loss from these audits for which it is probable that a liability has been incurred, however amounts asserted by taxing authorities or the amount ultimately assessed against the Company could be greater than the accrued amounts. Accordingly, additional provisions may be recorded in the future as revised estimates are made or underlying matters are settled or resolved. Imposition of assessments as a result of audits related to these other taxes could have an adverse effect on the Company’s results of operations, cash flows and financial condition.

Lease Commitments

The future minimum payments for operating leases as of July 31, 2012 are as follows:

(in thousands)
Year ending July 31:
2013	$	4,697
2014		1,983
2015		691
2016		555
2017		481
Thereafter		440
Total payments	$	8,847

Rental expense under operating leases was $4.2 million, $4.5 million and $4.9 million in fiscal 2012, fiscal 2011 and fiscal 2010, respectively. In addition, connectivity charges under operating leases were $16.4 million, $19.0 million and $21.8 million in fiscal 2012, fiscal 2011 and fiscal 2010, respectively.

Letters of Credit

As of July 31, 2012, the Company had letters of credit and surety bonds outstanding totaling $17.0 million. These letters of credit and surety bonds were primarily collateral to secure mortgage repayments and the $10.1 million Alexsam judgment (see Note 13), respectively. The letters of credit outstanding as of July 31, 2012 expire as follows: $1.9 million in the year ending July 31, 2013, $0.1 million in the year ending July 31, 2014 and $2.8 million in August 2015.

Customer Deposits

As of July 31, 2012 and 2011, “Customer deposits” in the Company’s consolidated balance sheets included refundable customer deposits of $10.5 million and $1.5 million, respectively, related to the Company’s European prepaid payment services businesses.

Restricted Cash and Cash Equivalents

The Company’s restricted cash and cash equivalents include collateral for letters of credit and restricted balances pursuant to banking regulatory and other requirements related to IDT Financial Services, the Company’s Gibraltar-based bank. Restricted cash and cash equivalents consist of the following:

July 31 (in thousands)	2012		2011
Restricted cash and cash equivalents—short-term
Letters of credit related	$	1,430	$	2,880
IDT Financial Services customer deposits		11,206		1,248
Total short-term		12,636		4,128
Restricted cash and cash equivalents—long-term
Letters of credit related		2,763		3,538
IDT Financial Services related		6,703		8,703
Total long-term		9,466		12,241
Total restricted cash and cash equivalents	$	22,102	$	16,369