NEWARK, NJ — June 7, 2006 — IDT Corporation (NYSE: IDT, IDT.C) announces operating results for the third quarter of fiscal 2006, the three months ended April 30, 2006. 

• Revenues: $589.1 million, down 0.5% year over year.
• Net loss: $8.6 million, versus $14.3 million one year ago.
• Diluted earnings per share: ($0.09), versus ($0.15) one year ago.
• Cash, cash equivalents, restricted cash and marketable securities totaled $708.8 million as of quarter end.

The following table summarizes the operating performance of IDT’s business segments¹:

 

		Revenues			Income (Loss) from Operations
$ millions	Q3 ’06	Q2 ’06	Q3 ’05		Q3 ’06	Q2 ’06	Q3 ’05
IDT Retail Telecom	$364.0	$368.2	$375.6		($44.4)	($4.1)	$10.9
IDT Wholesale Telecom	121.1	128.8	140.7		(7.6)	(7.3)	(4.5)
IDT Telecom Total	485.1	497.0	516.3		(52.0)	(11.4)	6.4
IDT Entertainment	41.8	48.4	46.0		(4.9)	0.2	3.1
Voice over IP	24.0	25.1	17.1		(14.2)	(9.4)	(11.5)
IDT Capital	37.7	43.4	11.1		(3.2)	(3.8)	(3.3)
IDT Solutions	0.3	1.7	1.6		(3.7)	(18.4)	(8.8)
Corporate	–	–	–		(12.9)	(14.3)	(15.4)
Total IDT	$589.1	$615.7	$592.1		($91.0)	($57.1)	($29.5)

  DEVELOPMENTS

·         On February 17, we executed a merger agreement with Net2Phone, following which it became a wholly owned subsidiary of IDT.  Net2Phone is presently being integrated into our Telecom division.
·         On February 28, we completed the sale of our Russian telecom business, Corbina, to a group of private equity investors, from which IDT realized net proceeds of approximately $129.9 million.
·         On May 15, we announced that Liberty Media entered into a binding term sheet to acquire IDT Entertainment, in exchange for its present holdings in IDT (which include 17.2 million Class B shares), $186 million in cash, and assumption of IDT Entertainment’s debt.  The agreement is expected to close during the fourth quarter, subject to certain adjustments and approvals.
·         On May 22, our previously announced tender offer for outstanding employee options expired, with 7.9 million options tendered at $2.00 each.
·         Towards the end of the third quarter, we initiated a company-wide restructuring and cost savings program, which has resulted in the elimination of approximately 375 positions to date, of which 270 were customer service related.  Through May 31, these reductions have resulted in approximately $14 million in severance costs, of which $5.2 million has been recorded as restructuring charges in the third quarter.  Savings resulting from the restructuring efforts to date are estimated to be approximately $15-20 million per year, and will begin to be reflected in our operating results as we enter fiscal 2007.

RESULTS OF OPERATIONS

In addition to the standard Line of Business detail, which has historically been included in the earnings release and follows, an additional line of business report for the telecom business is included as an addendum at the end of this release. This is designed to provide enhanced disclosure of the results of our core operating businesses, as compared to other non-core operations including our new initiatives.

IDT Telecom Line of Business Detail1
			Revenues				Gross Profit Margin
	$ millions	Q3 ’06	Q2 ’06	Q3 ’05			Q3 ’06	Q2 ’06	Q3 ’05
	Calling Cards	$301.7	$301.6	$292.5			7.7%	20.4%	21.0%
	Consumer Phone Services	62.3	66.7	83.1			41.6%	44.3%	47.8%
	Total Retail	364.0	368.2	375.6			13.5%	24.7%	27.0%
	Wholesale	121.1	128.8	140.7			8.2%	8.6%	9.3%
	Total Telecom	$485.1	$497.0	$516.3			12.2%	20.5%	22.2%

IDT Telecom

Calling Cards

Calling card revenues were unchanged versus the second quarter of fiscal 2006, and increased 3.2% when compared to last year’s third quarter. During the quarter, we decided to institute selective price increases on cards in the U.S. and Europe, in an effort to improve gross margins, resulting in improved revenue-per-minute price realizations in both the U.S. and Europe. However, when compared to the second quarter, the higher price realizations were offset by a decline in minute volumes, which was partly due to the third quarter having fewer days than does the second quarter.  

In the third quarter the U.S. calling card business recorded a $48.1 million accrual for the potential past liability of various telecom regulatory agency fees stemming from: Telecommunications Relay Services Fund (TRS), Federal Communications Commission (FCC) and Universal Service Fund (USF) for the period through April 30, 2006. This accrual adjusts to what management believes at this time to be our maximum potential liability to all such agencies, given the methodologies used by the Universal Service Administration Corporation (USAC) for calculation of USF related fees, in its recently completed audit of our calling card business for calendar years 2000-2004.  IDT has filed an appeal related to the audit findings, and will vigorously contest the imposition of any of these fees.

Due to this accrual, gross margins in our calling card business decreased to 7.7% in the third quarter from 20.4% in the second quarter.  Excluding the effect of this accrual, calling card gross margins in the third quarter were higher than in both the second quarter and last year’s third quarter, as the higher price-per-minute realizations, which occurred as the average cost-per-minute remained relatively unchanged, yielded an improved gross profit-per-minute in both the U.S. and Europe.  Going forward, we expect the calling card business to maintain the improved, pre-accrual gross margins we experienced this quarter.

Consumer Phone Services (CPS)

Consumer phone services revenues were 6.6% lower than those recorded in the second quarter, and 25.1% lower than the year ago period, reflecting a continued decline in our U.S. customer base during both periods, which outweighed the growth in our European bundled telecommunications services business over those same periods.

The customer base for our U.S. bundled unlimited local and long distance phone service was approximately 165,000 as of April 30, 2006, compared to 188,000 customers as of January 31, 2006.  The customer base for long distance-only service stood at 266,000 at the end of the third quarter, as compared to 278,000 at the end of the second quarter.  These declines, particularly in our bundled offering, are a direct result of our decision to stop marketing the service early in calendar 2005 following the FCC’s abolishment of the UNE-P pricing regime, which has made it uneconomical for competing carriers, such as IDT, to attract new customers.

Toucan, the brand name under which we offer bundled telecommunications services in the U.K. and the Netherlands, provided service to approximately 186,000 customers subscribing to more than 221,000 services (including local, long distance, broadband and mobile) as of April 30, 2006, as compared to 162,000 customers subscribing to 191,000 services at the end of the second quarter. Within our CPS business lines, we expect the trend of lower U.S. revenue and higher European revenue to continue in the fourth quarter and into fiscal year 2007.

Wholesale Carrier

Wholesale carrier revenues decreased 6.0% sequentially, and 13.9% from the third quarter a year ago.  On a sequential basis, minute volumes were lower than the previous quarter as a result of fewer selling days.  In both periods, per-minute price realizations continued to decline, outweighing declines in per-minute costs, leading to a decline in per-minute gross profits.  With relatively fixed circuit-related costs remaining largely unchanged across all periods, wholesale carrier gross margins declined to 8.2% in the third quarter, versus 8.6% in the second quarter, and 9.3% in last year’s third quarter. Going forward, we believe that revenues for our wholesale carrier unit will stabilize in the range of $120-125 million per quarter, with some small margin improvements over the third quarter’s level.

IDT Entertainment

Revenues for IDT Entertainment declined 13.6% from the second quarter, and 9.0% from the third quarter one year ago.  These declines were driven by reduced revenue in our home video distribution business, resulting primarily from a release calendar that had substantially fewer new releases in this quarter as compared to the same period in the prior year.  Additionally, revenue in our work-for-hire business has declined consistent with our previously discussed strategy of de-emphasizing service work in favor of developing our own intellectual property.  Gross margins were 34.1% for the quarter, down slightly from 34.7% in the second quarter.

Our feature film division remains on track, with our first computer generated animation film, “Everyone’s Hero” scheduled to reach over 2,000 domestic theaters the weekend of September 15, 2006.  During the quarter, our second film, “Space Chimps,” was also announced.  This film is being produced in conjunction with Vanguard Animation, and is scheduled for release in 2008.

IDT Capital

IDT Capital’s revenues declined 13.0% sequentially, and increased 240.8% versus the year ago period.  The sequential decline resulted from the seasonal nature of IDT Energy’s business, while the increase in the year over year period is reflective of the quick revenue ramp up of this business during the past year.  As of the end of the third quarter, IDT Energy serviced approximately 165,000 total meters in New York State, compared to 132,000 meters at the end of the second quarter.

IDT Solutions

IDT Solutions, the operating segment, that now contains IDT Spectrum, had minimal revenues during the quarter, as management continued to work on securing a contract for wireless data backhaul from a mobile network operator.  Gross margins for the business turned positive in the third quarter as a result of the sale of the remaining Winstar business in the second quarter.  IDT Spectrum continues to explore various strategic alternatives in the capital markets to unlock the value of its spectrum assets.

Telecom Line of Business- Addendum

The table below is being provided in addition to the Telecom Line of Business Detail provided earlier in this release, in an effort to provide increased visibility to the operating businesses within IDT Telecom.

The new Telecom Line of Business addendum separates operational performance within our Consumer Phone Services business geographically, between the U.S. and Europe, each an independent business.  In addition, an Other category has been separated out from our Calling Card business.  The Other category contains the operational results of many of the new initiatives presently being operated within IDT Telecom.

 

^* Calling card gross profits and gross margins as shown include the effect of the $48.1 million regulatory fee accrual taken in the third quarter of fiscal 2006.

IDT CONFERENCE CALL INFORMATION

 Conference call today, June 7, 2006, at 8:30 AM Eastern Time.

·          From the U.S., (866) 594-2183; passcode: 7450880.

·          International callers, (973) 935-8583; passcode: 7450880.

·          Replay available for one week at

o         (877) 519-4471, passcode: 7450880 for domestic callers,

o         or (973) 341-3080, passcode: 7450880 for international callers.

·          Webcast of the conference call at the direct link on www.idt.net.  An archived copy of the call will be available at the IDT Website, in the Investor Relations section’s Presentations for at least six months after the call.

·          Additional financial and statistical information is available on the Investor Relations portion of IDT’s website, at https://www.idt.net/about/ir/overview.asp.

ABOUT IDT CORPORATION 

IDT Corporation, through its IDT Telecom subsidiary, is a facilities-based, multinational carrier that provides a broad range of telecommunications services to retail and wholesale customers worldwide. IDT Telecom, by means of its own international telecommunications backbone and fiber optic network infrastructure, provides its customers with integrated and competitively priced international and domestic long distance and domestic all-distance telephony and prepaid calling cards. IDT Entertainment is the IDT subsidiary that is focused on developing, acquiring, producing and distributing computer-generated and traditionally animated productions and other productions for the film, broadcast and direct-to-consumer markets. IDT Capital is the IDT division principally responsible for IDT‘s initiatives in radio broadcasting, brochure distribution and new technologies. Net2Phone, Inc., a subsidiary of IDT Corporation, is a provider of high-quality global retail Voice over IP services and offers a fully outsourced cable telephony service to cable operators allowing cable operators to provide residential phone service to their subscribers. IDT Corporation‘s Class B Common Stock and Common Stock trade on the New York Stock Exchange under the ticker symbols “IDT“ and “IDT.C,“ respectively.

In this press release, all statements that are not purely about historical facts, including, but not limited to, those with the words “believe,” “anticipate,” “expect,” “plan,” “intend,” “estimate,” “target” and similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  While these forward-looking statements represent IDT’s current judgment of what may happen in the future, actual results may differ materially from the results expressed or implied by these statements due to numerous important factors. These risks and uncertainties include, but are certainly not limited to the specific risks and uncertainties discussed in our reports filed with the SEC.  All forward-looking statements and risk factors included in this document are made as of the date hereof, based on information available to the Company as of the date thereof, and the Company assumes no obligation to update any forward-looking statements or risk factors.

Footnotes

¹   Columns in tables may not add due to rounding.