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annualreport2008
NASDAQ: JCOM WWW.J2GLOBAL.COM

Table of contents

  • Page 1
    annualreport2008 N A S D A Q : J C O M W W W . J 2 G L O B A L . C O M

  • Page 2
    ... can obtain service through local telephone numbers Addition of the Phone People® branded service to our growing Onebox® and eVoice® suites of services in the value-added voice services market Strengthening of our proprietary IP holdings We're very proud of our achievements in 2008. The support...

  • Page 3
    ... year ended December 31, 2008 OR Â... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-25965 j2 GLOBAL COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Delaware (State or...

  • Page 4
    ... Data Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. PART III. Item 10. Item 11. Item 12. Item 13. Item 14. PART IV. Item 15. Exhibits and Financial Statement Schedules Directors, Executive Officers and Corporate...

  • Page 5
    ... our international Websites and direct sales force; and (vii) offering additional services to our existing customers. We continuously seek to extend the number of distribution channels through which we acquire paying customers and improve the cost and volume of customers obtained through our current...

  • Page 6
    .... Our eFax Free® service is our limited use, advertising-supported "introductory offering," which assigns the subscriber a unique randomly selected telephone number that enables the user to receive a limited number of faxes into his or her personal email inbox and to access these messages via a Web...

  • Page 7
    ... software ease-of-use, service scalability, customer messaging and branding, geographic coverage, scope of services and local language sales, messaging and support. Our most popular solutions relate to faxing, including the ability to deliver faxes to our customers via email and our outbound desktop...

  • Page 8
    ...and Trademark Office, and others continue to proceed forward. We own and use a number of trademarks in connection with our products and services, including eFax and the eFax logo, eFax Corporate and the eFax Corporate logo, eVoice and the eVoice logo, Onebox and the Onebox logo and Electric Mail and...

  • Page 9
    ... and change our business practices. Further, any failure by us to protect our users' privacy and data could adversely affect our business. Future developments in laws that govern online activities might inhibit the growth of the Internet, impose taxes, mandate costly technical requirements, create...

  • Page 10
    ... any collective bargaining unit or agreement. We have never experienced a work stoppage. We believe our relationship with our employees is good. Web Availability of Reports Our corporate information Website is www.j2global.com. The information on our Website is not part of this Annual Report on Form...

  • Page 11
    .... Currently, a significant number of our users authorize us to bill their credit or debit card accounts directly for all transaction fees charged by us. We rely on encryption and authentication technology to effect secure transmission of confidential information, including customer credit and...

  • Page 12
    ... from obtaining local numbers or are limited to distributing local numbers to only certain customers. Our future success depends on our ability to procure large quantities of local telephone numbers in the U.S. and foreign countries in desirable locations at a reasonable cost and offer our services...

  • Page 13
    ... to handle current or higher volumes of activity, could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows. To obtain new customers, we have marketing agreements with operators of leading search engines and Websites. These arrangements...

  • Page 14
    ... we rely, such as our credit card processor, and our ability to provide these third parties the information required to process transactions. In addition, our ability to offer new paid services or alternative-billing plans is dependent on our ability to customize our billing systems. We are in the...

  • Page 15
    ... to control or minimize these risks. Our business and users may be subject to sales tax and other taxes. The application of indirect taxes (such as sales and use tax, value added tax ("VAT"), goods and services tax, business tax and gross receipt tax) to e-commerce businesses such as j2 Global and...

  • Page 16
    ... reclassified wireline broadband Internet access services (i.e., DSL) as information services, thereby allowing telephone companies to offer their lines to competing providers for what they decide is a "fair value" rather than at "low rates." The decision enables incumbent local exchange carriers to...

  • Page 17
    ...include information services, that change may impact our operations. In addition, for calls placed to certain of our European telephone numbers we receive revenue share payments from the local telecommunications carrier. The per minute rates applicable to these "calling party pays" telephone numbers...

  • Page 18
    ... Retention Directive requires telecommunications carriers and information service providers to store traffic (e.g., time of communication, numbers, identity of users) and location data from electronic communications for six months to two years, at the discretion of the Member States. Member States...

  • Page 19
    ... perceptions of us and comparable public companies; Conditions and trends in the communications, messaging and Internet-related industries; Announcements of technological innovations and acquisitions; Introduction of new services by us or our competitors; Developments with respect to intellectual...

  • Page 20
    ... filed by Justin Lynch as the named plaintiff in the United States District Court for the Central District of California alleging that we have attempted to monopolize and/or monopolized the market for Internet facsimile services to home and small offices in violation of Section 2 of the Sherman Act...

  • Page 21
    ... claims, damages, including treble and punitive damages, an injunction against further violations, and attorneys' fees and costs. We have not yet responded to the counterclaims. We do not believe, based on current knowledge, that any of the foregoing legal proceedings or claims is likely to have...

  • Page 22
    ... Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "JCOM". The following table sets forth the high and low closing sale prices for our common stock for the periods indicated, as reported by the NASDAQ...

  • Page 23
    Equity Compensation Plan Information The following table provides information as of December 31, 2008 regarding shares outstanding and available for issuance under j2 Global's existing equity compensation plans: Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and ...

  • Page 24
    ...D ec -0 4 M ar -0 8 Ju n08 p06 Ju n07 Se p07 D ec -0 7 p08 Se j2 Global Peer Group Nasdaq Telecom Measurement Date Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep...$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ j2 Global 100.00 91.09 112.14 127.43 139.17 138.40 138.93 163.05 172.41 189.59 251...

  • Page 25
    ... Notes contained in this Annual Report on Form 10-K and the information contained herein in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Historical results are not necessarily indicative of future results. All share numbers and per share amounts...

  • Page 26
    ... subscribers, including those with premium rate telephone numbers. We operate in one reportable segment: value-added messaging and communications services, which provides for the delivery of fax, voice and email messages and communications via the telephone and/or Internet networks. During the past...

  • Page 27
    ...03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ("EITF 03-1"). SFAS 115 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. These j2 Global investments...

  • Page 28
    ... criteria including, but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate and award cancellation rate. These inputs are subjective and are determined using management's judgment. If differences...

  • Page 29
    ... comparing the implied fair value of goodwill and intangible assets to their carrying value at the reporting unit level. We completed the required impairment review at the end of 2008, 2007 and 2006 and noted no impairment. Consequently, no impairment charges were recorded. Income Taxes. We account...

  • Page 30
    ...result in the need to record additional tax liabilities or potentially to reverse previously recorded tax liabilities. In addition, we may be subject to examination of our tax returns by the U.S. Internal Revenue Service and other domestic and foreign tax authorities. We are currently under audit by...

  • Page 31
    ... of new sign-ups derived from subscribers coming directly to our Websites, free-to-paid subscriber upgrades, small to mid-sized corporate and enterprise sales, direct large enterprise and government sales, direct marketing spend for acquisition of paying subscribers, international sales and business...

  • Page 32
    ... businesses acquired in fiscal 2007 and 2008, and increased costs to maintain our existing services, accommodate our service enhancements, develop and implement additional service features and functionality and continue to bolster our infrastructure security. General and Administrative. Our general...

  • Page 33
    ... on our effective tax rate. The amount of income taxes we pay is subject to audit by federal, state and foreign tax authorities. Our estimate of the potential outcome of any uncertain tax issue is subject to management's assessment of relevant risks, facts and circumstances existing at that time. We...

  • Page 34
    ... cash used in financing activities was primarily comprised of repurchases of our common stock and repayment of long-term debt, offset by proceeds from the exercise of stock options and common shares issued under our employee stock purchase plan. Stock Repurchase Program In February 2008, j2 Global...

  • Page 35
    ... review the risk factors described in this document as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in 2009. Interest Rate Risk Our exposure to market risk for changes...

  • Page 36
    ... agreement to be used for working capital and general corporate purposes (see Note 18 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K). If we were to borrow from this line of credit agreement we would be subject to the prevailing interest rates...

  • Page 37
    ...with the standards of the Public Company Accounting Oversight Board (United States), j2 Global Communications, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of...

  • Page 38
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of j2 Global Communications, Inc. Los Angeles, California We have audited the accompanying consolidated statement of operations, stockholders' equity, and cash flows of j2 Global Communications, Inc. ...

  • Page 39
    j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2008 and 2007 (In thousands, except share amounts) 2008 ASSETS Cash and cash equivalents Short-term investments Accounts receivable, net of allowances of $2,896 and $1,378, respectively Prepaid expenses and ...

  • Page 40
    j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2008, 2007 and 2006 (In thousands, except share and per share data) 2008 Revenues: Subscriber Other 2007 2006 $ 236,841 4,672 241,513 $ 212,329 8,368 220,697 $ 175,171 5,908 181,079 ...

  • Page 41
    ... common stock and restricted stock Issuance of common stock under employee stock purchase plan Exercise of stock options and warrants Excess tax benefits on from share-based compensation Repayment of other long-term liabilities Net cash used in financing activities Effect of exchange rate changes on...

  • Page 42
    ... earnings - Foreign currency translation - Unrealized loss on available-forsale investments - Comprehensive income - Exercise of stock options 776,273 Issuance of common stock under employee stock purchase plan 9,282 Tax benefit of stock option exercises and restricted stock - Repurchase of common...

  • Page 43
    j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES...available-forsale investments Comprehensive income Exercise of stock options Issuance of common stock under employee stock purchase plan Tax benefit of stock option exercises and restricted stock Repurchase of common stock Repurchase of restricted stock...

  • Page 44
    ... We offer fax, voicemail, email and call handling services and bundled suites of certain of these services. We market our services principally under the brand names eFax®, eFax Corporate®, Onebox®, eVoice® and Electric Mail®. We deliver many of our services through our global telephony/Internet...

  • Page 45
    ...expenses, interest payable and customer deposits approximates fair value due to the short-term nature of such instruments. The carrying value of other long-term liabilities approximates fair value as the related interest rates approximate rates currently available to j2 Global. In February 2007, the...

  • Page 46
    ..., $279.1 million and $121.9 million for 2008, 2007 and 2006, respectively. The cost of the available-for-sale investments sold is purchase price paid, net of amortization, if applicable. Losses relating to trading securities still held as of December 31, 2008, amounted to $0.4 million. There were no...

  • Page 47
    ... are valued primarily using quoted market prices utilizing market observable inputs. Our investments in auction rate securities are classified within Level 3 because there are no active markets for the auction rate securities and therefore we are unable to obtain independent valuations from...

  • Page 48
    equipment under capital leases, are amortized on a straight-line basis over their estimated useful lives or for leasehold improvements, the related lease term, if less. We have capitalized certain internal use software and Website development costs which are included in property and equipment. The ...

  • Page 49
    ... payment awards, including stock options, employee stock purchases under employee stock purchase plans and non-vested stock awards, such as restricted stock. SFAS 123(R) supersedes SFAS No. 123, Accounting for Share-Based Compensation ("SFAS 123"). We elected to use the modified prospective method...

  • Page 50
    ..., geographic areas and major customers. We operate in one reportable segment: value-added messaging and communications services, which provides for the delivery and handling of fax, voice and email messages and communications via the telephone and/or Internet networks. (s) Comprehensive Income...

  • Page 51
    ... by SFAS 159, we have elected not to use the fair value option to measure our available-for-sale and held-tomaturity securities under SFAS 159 and will continue to report under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). We have made this election...

  • Page 52
    ... of acquisition: (1) certain assets of Mediaburst Limited ("Mediaburst"), a UK-based provider of messaging services, (2) all outstanding shares of Phone People Holdings Corporation, a U.S.-based provider of voice messaging services, (3) certain assets of Mailwise, LLP, a U.S.-based provider of email...

  • Page 53
    ...we acquired YAC Limited ("YAC"), a provider of messaging services with customers predominantly located in the United Kingdom. In connection with the acquisition, we paid cash in exchange for all outstanding shares of capital stock. The purchase price, including acquisition costs, was $8.5 million of...

  • Page 54
    ..., $3,000 and $38,000 for the years ended December 31, 2008, 2007 and 2006, respectively. 5. Goodwill and Intangible Assets Pursuant to SFAS 142, we completed the annual impairment review of our goodwill and indefinite-lived intangible assets for the years 2008, 2007 and 2006. We concluded that the...

  • Page 55
    ... actions filed by us against the plaintiffs. The number and significance of these disputes and inquiries has increased as our business expands and j2 Global grows. Any claims or regulatory actions against us, whether meritorious or not, could be time-consuming, result in costly litigation, require...

  • Page 56
    ... filed by Justin Lynch as the named plaintiff in the United States District Court for the Central District of California alleging that we have attempted to monopolize and/or monopolized the market for Internet facsimile services to home and small offices in violation of Section 2 of the Sherman Act...

  • Page 57
    ... income tax rate with j2 Global's effective income tax rate is as follows: Years Ended December 31, 2008 2007 2006 35.0% 35.0% 35.0% 1.7 2.5 2.1 (15.0) (15.1) (15.9) 7.2 6.3 6.0 0.1 (0.4) 0.2 29.0% 28.3% 27.4% Statutory tax rate State income taxes, net Foreign rate differential Tax contingency...

  • Page 58
    ... stock through the end of December 2010. The Repurchase Program was completed on July 9, 2008; five million shares at an aggregated cost of $108.0 million (including commission fees of $0.1 million) were repurchased. We have accounted for these repurchases using the cost method. At December 31, 2008...

  • Page 59
    10. Stock Options and Employee Stock Purchase Plan Effective January 1, 2006, j2 Global adopted the provisions of SFAS 123(R), which require the measurement and recognition of compensation expense based on estimated fair value of all share-based payment awards including stock options, employee stock...

  • Page 60
    ... of restricted stock and other sharebased awards available for grant under the 2007 Plan, and no additional shares available for grant under or outside of the 1997 Plan. The following table summarizes j2 Global's nonvested options as of December 31, 2008 and changes during the year ended December 31...

  • Page 61
    ... 31, 2008 is set forth below: Weighted-Average Grant-Date Fair Value $ 22.94 23.25 20.98 21.14 23.75 Nonvested at January 1, 2008 Granted Vested Canceled Nonvested at December 31, 2008 Shares 359,550 58,474 (75,280) (23,250) 319,494 (b) Employee Stock Purchase Plan In May of 2001, j2 Global...

  • Page 62
    ..., to be used to purchase shares of j2 Global's common stock at certain plan-defined dates. The price of the common stock purchased under the Purchase Plan for the offering periods is equal to 95% of the fair market value of the common stock at the end of the offering period. During 2008, 2007 and...

  • Page 63
    ... event that j2 Global requests that Mr. Rieley work more than 20 hours in any calendar month, j2 Global will pay Mr. Rieley an additional $500 per hour for each additional hour worked. 16. Supplemental Cash Flows Information Interest income received during the years ended December 31, 2008, 2007 and...

  • Page 64
    ... the Credit Agreement refer to j2 Global's Current Report on Form 8-K filed with the SEC on January 9, 2009. As of February 25, 2009, the total amount of the Credit Agreement was available for use. On February 23, 2009, we purchased for cash the assets associated with the Internet fax technology...

  • Page 65
    ... that j2 Global's internal control over financial reporting was effective as of December 31, 2008. Management's report on internal control over financial reporting was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange...

  • Page 66
    ... Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule of j2 Global Communications, Inc. and its subsidiaries and our report dated February 24, 2009 expressed an unqualified opinion. /s/ SINGER LEWAK LLP Los Angeles, California...

  • Page 67
    ... is incorporated by reference to the information to be set forth in our 2008 Proxy Statement. Item 14. Principal Accounting Fees and Services The information required by this item regarding principal accountant fees and services is incorporated by reference to the information to be set forth in our...

  • Page 68
    ... and Restated 1997 Stock Option Plan (9) j2 Global Communications, Inc. 2007 Stock Plan (10) Amended and Restated j2 Global Communications, Inc. 2001 Employee Stock Purchase Plan (8) Letter Agreement dated April 1, 2001 between j2 Global and Orchard Capital Corporation (4) Amendment dated December...

  • Page 69
    ... by reference to j2 Global's Annual Report on Form 10-K filed with the Commission on April 1, 2002. (8) Incorporated by reference to j2 Global's Current Report on Form 8-K filed with the Commission on May 3, 2006. (9) Incorporated by reference to j2 Global's Quarterly Report on Form 10-Q filed with...

  • Page 70
    ...on February 25, 2009. j2 Global Communications, Inc. By: /s/ NEHEMIA ZUCKER Nehemia Zucker Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant...

  • Page 71
    ...) Additions: Charged to Deductions: Balance Costs and Write-offs (1) at End Expenses and recoveries of Period $ 2,815 $ $ 780 797 $ (1,297) $ $ (507) (319) $ 2,896 $ 1,378 $ 1,105 Description Year Ended December 31, 2008: Allowance for doubtful accounts Year Ended December 31, 2007: Allowance for...

  • Page 72
    EXHIBIT 21 List of Subsidiaries of j2 Global Communications, Inc. Name Electric Mail (International) L.P. j2 Global Holdings Limited j2 Global Ireland Limited Phone People Holdings Corp. State or Other Jurisdiction of Incorporation Alberta, Canada Ireland Ireland California 70

  • Page 73
    ... financial statements, the financial statement schedule and internal control over financial reporting, which appear in this Annual Report on Form 10-K of j2 Global Communications, Inc. for the year ended December 31, 2008. /s/ SINGER LEWAK LLP Los Angeles, California February 24, 2009 71

  • Page 74
    ... of Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment as discussed in Note 2) appearing in this Annual Report on Form 10íK of j2 Global Communications, Inc. for the year ended December 31, 2008. /s/ DELOITTE & TOUCHE LLP Los Angeles, California February 25, 2009...

  • Page 75
    ... 31.1 CERTIFICATIONS I, Nehemia Zucker, certify that: 1. I have reviewed this Annual Report on Form 10-K of j2 Global Communications, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements...

  • Page 76
    ... CERTIFICATIONS I, Kathleen M. Griggs, certify that: 1. I have reviewed this Annual Report on Form 10-K of j2 Global Communications, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements...

  • Page 77
    ... SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of j2 Global Communications, Inc. (the "Company") for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the...

  • Page 78

  • Page 79
    CORPORATE INFORMATION Corporate Office j2 Global Communications, Inc. 6922 Hollywood Boulevard 5th Floor Los Angeles, California 90028 Telephone 323.860.9200 Facsimile 323.860.9201 Common Stock Listing NASDAQ Global Select Market Symbol: JCOM Stock Registrar and Transfer Agent Computershare Trust ...

  • Page 80
    6922 Hollywood Boulevard 5th Floor Los Angeles, California 90028 Phone 323.860.9200 Fax 323.860.9201 www.j2global.com