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Uncertain Income Tax Positions
j2 Global accrued liabilities for uncertain income tax positions in accordance with the requirements of ASC 740. During 2010, j2
Global recognized a net increase of $7.4 million in liabilities related to positions taken during 2010. The Company also had a net decrease of
$15.2 million related to the reversal of positions taken in prior years. The main cause of the decrease was the reversal of and associated payment
of tax as a result of effectively settled the transfer pricing portion of the tax audit by the Internal Revenue Service relating to the Company’
s
income tax returns for 2004 through 2008
. Accordingly, the Company had $37.9 million in liabilities for uncertain income tax positions at
December 31, 2010. Included in this liability amount were $0.7 million accrued for related interest, net of federal income tax benefits and
$62,000 for related penalties recorded in income tax expense on j2 Global’s consolidated statement of operations.
The reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
Uncertain income tax positions are reasonably possible to significantly change during the next 12 months as a result of completion of
income tax audits and expiration of statutes of limitations. 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 as a result of the completion of income tax audits that are reasonably possible
to occur in the next 12 months. However, the Company estimates that approximately $13.5 million of uncertain income tax positions as a result
of the expiration of statutes of limitations are reasonably possible to occur in the next 12 months.
As of December 31, 2010, 2009 and 2008, U.S. income taxes have not been assessed on $57.7 million, $83.8 million and $85.5 million,
respectively, of undistributed earnings of foreign subsidiaries because management considers these earnings to be invested indefinitely.
During 2010, 2009 and 2008, the Company recorded tax benefits of $2.7 million, $4.0 million and $2.0 million from the exercise of
non-qualifying stock options, restricted stock and disqualifying dispositions of incentive stock options as a reduction of j2 Global’
s income tax
liability and an increase in equity, respectively.
j2 Global is currently under audit by the California Franchise Tax Board for tax years 2005 through 2007. It is possible that this audit
may conclude in the next 12 months and that the unrecognized tax benefits the Company has recorded in relation to these tax years may change
compared to the liabilities recorded for these periods. However, it is not currently possible to estimate the amount, if any, of such change. j2
Global is also under audit by various other states for non-income related taxes.
10. Stockholders’ Equity
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 the Company’
s 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. The Company has accounted for these repurchases using the cost method. During 2008, j2 Global retired two million shares
of j2 Global’s treasury stock.
In May 2010, the Company’
s Board of Directors approved a program authorizing the repurchase of up to ten million shares of the
Company’s common stock through the end of April 30, 2012. On May 4, 2010, the Company entered into a Rule 10b5-
1 trading plan with a
broker to facilitate the repurchase program. During the year ended December 31, 2010, 6,300 shares were repurchased at an aggregated cost of
$0.1 million (including an immaterial amount of commission fees). j2 Global has accounted for these repurchases using the cost method.
At
December 31, 2010 and December 31, 2009, 8,680,568 common shares at a cost of $112.7 million were held as treasury stock.
Periodically, participants in j2 Global’
s stock plans surrender to the Company shares of j2 Global stock to satisfy tax withholding
obligations of such participants arising upon the vesting of restricted stock. During the year ended December 31, 2010, the Company purchased
210,891 shares from plan participants.
Balance at January 1, 2010
$
43,347
Decreases related to positions taken during a prior period
(1,865
)
Increases related to positions taken in the current period
7,410
Settlements
(13,307
)
Balance at December 31, 2010
$
35,585
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