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As of December 31, 2008, we had utilizable federal and state (California) net operating loss carryforwards (“NOLs”) of $5.7
million and $6.3 million, respectively, after considering substantial restrictions on the utilization of these NOLs due to “ownership
changes” as defined in the Internal Revenue Code. We currently estimate that all of the above-mentioned federal and state NOLs will
be available for use before their expiration. These NOLs expire through the year 2021 for the federal and 2014 for the state. In
addition, as of December 31, 2008, we had state research and development tax credits of $0.8 million, which last indefinitely.
Uncertain Income Tax Positions
We adopted FIN 48 as of January 1, 2007 (See Note 2. Basis of Presentation and Summary of Significant Accounting Policies)
and accrued liabilities for uncertain income tax positions in accordance with the requirement of FIN 48. At the adoption date of
January 1, 2007, we had $25.0 million in liabilities for uncertain income tax positions, including $6.1 million recognized under the
FASB issued SFAS No. 5, Accounting for Contingencies, and carried forward from prior years and $18.9 million recognized upon
adoption of FIN 48 as a reduction to retained earnings. During 2008, we recognized a net increase of $6.6 million in liabilities and at
December 31, 2008 had $38.6 million in liabilities for uncertain income tax positions. Included in this liability amount were $1.2
million accrued for related interest, net of federal income tax benefits, and $40,000 for related penalties recorded in income tax
expense on our consolidated statement of operations.
The reconciliation of our unrecognized tax benefits is as follows (in thousands):
Balance at January 1, 2008 $ 30,863
Increases related to positions taken on items from prior years 906
Increases related to positions taken in 2008 5,660
Related interest and penalty, tax effected 1,214
Balance at December 31, 2008 $ 38,643
Uncertain income tax positions are reasonably possible to significantly change during the next 12 months as a result of
completion of income tax audits. At this point it is not possible to provide an estimate of the amount, if any, of significant changes in
reserves for uncertain income tax positions that are reasonably possible to occur in the next 12 months.
As of December 31, 2008, 2007 and 2006, U.S. income taxes have not been assessed on $85.5 million, $82.8 million and $62.8
million, respectively, of undistributed earnings of foreign subsidiaries because management considers these earnings to be invested
indefinitely.
During 2008, 2007 and 2006, we recorded tax benefits of $0.1 million, $0.8 million and $1.6 million from the exercise of non-
qualifying stock options, restricted stock and disqualifying dispositions of incentive stock options as a reduction of our income tax
liability and an increase in equity, respectively.
We are currently under audit by the Internal Revenue Service for tax years 2004 through 2006. In addition, we have been
notified by the California Franchise Tax Board that we are being audited for tax years 2005 through 2007. It is possible that these
audits may conclude in the next 12 months and that the unrecognized tax benefits we have recorded in relation to these tax years may
change compared to the liabilities recorded for these periods. However, it is not now possible to estimate the amount, if any, of such
change.
9. Stockholders’ Equity
(a) Share Repurchase Program
In February 2008, j2 Global’s Board of Directors approved a common stock repurchase program (the “Repurchase Program”)
authorizing the repurchase of up to five million shares of our common 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 and
December 31, 2007, 8,680,568 common shares at a cost of $112.7 million and 5,660,324 common shares at a cost of $4.7 million,
respectively, were held as treasury stock. During 2008, we retired two million shares of our treasury stock.
(b) Stock Split
On May 25, 2006, we effected a two-for-one stock split of our common stock in the form of a stock dividend, to each
shareholder of record at the close of business on May 15, 2006. All historical share and per share amounts contained in the
accompanying consolidated financial statements and related notes have been retroactively restated to reflect this change in our capital
structure.