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( k) Long-Lived Assets
j2 Global accounts for long-
lived assets, which include property and equipment and identifiable intangible assets with finite useful lives
(subject to amortization), in accordance with the provisions of FASB ASC Topic No. 360, Property, Plant, and Equipment (“ASC 360”),
which
requires that long-
lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the expected future net cash flows
generated by the asset. If it is determined that the asset may not be recoverable, and if the carrying amount of an asset exceeds its estimated fair
value, an impairment charge is recognized to the extent of the difference.
j2 Global assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-
lived
assets may not be recoverable. During the fourth quarter of 2009, j2 Global determined based upon its current and future business needs that the
rights to certain external administrative software will not provide any future benefit. Accordingly, j2 Global recorded a disposal in the amount of
$2.4 million to the consolidated statement of operations representing the capitalized cost as of December 31, 2009. No impairment was recorded
in fiscal year 2011 and 2010.
(l) Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in
a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are
recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships,
trademarks and trade names, developed technologies and other intangible assets. Intangible assets subject to amortization are amortized using the
straight-line method over estimated useful lives ranging from one to 20 years. In accordance with FASB ASC Topic No. 350, Intangibles
–
Goodwill and Other (“ASC 350”),
goodwill and other intangible assets with indefinite lives are not amortized but tested annually for impairment
or more frequently if j2 Global believes indicators of impairment exist. In connection with the annual impairment test for goodwill, the Company
has the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount (See (t) – Recent Accounting Pronoucements related to ASU No. 2011-08, Intangibles –
Goodwill and Other (Topic
350)). If the Company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount, then it
performs the impairment test upon goodwill. Intangible assets with indefinite lives are tested for impairment annually or more frequently if
circumstances indicate potential impairment. The impairment test involves a two-
step process. The first step involves comparing the fair values
of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its
reporting units using the income approach methodology of valuation. If the carrying value of a reporting unit exceeds the reporting unit’
s fair
value, j2 Global performs the second step of the test to determine the amount of impairment loss. The second step involves measuring the
impairment by comparing the implied fair values of the affected reporting unit’
s goodwill and intangible assets with the respective carrying
values. j2 Global completed the required impairment review at the end of 2011, 2010 and 2009 and concluded that there were no impairments.
Consequently, no impairment charges were recorded.
(m) Income Taxes
j2 Global’
s income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating the Company’
s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax determination is uncertain. j2 Global establishes reserves for tax-
related uncertainties
based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when
the Company believes that certain positions might be challenged despite the Company’
s belief that its tax return positions are fully supportable.
j2 Global adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of
limitations. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
j2 Global accounts for income taxes in accordance with FASB ASC Topic No. 740, Income Taxes (“ASC 740”),
which requires that
deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of
recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that
some or all of the net deferred tax assets will not be realized. The valuation allowance is reviewed quarterly based upon the facts and
circumstances known at the time. In assessing this valuation allowance, j2 Global reviews historical and future expected operating results and
other factors, including its recent cumulative earnings experience, expectations of future taxable income by taxing jurisdiction and the
carryforward periods available for tax reporting purposes, to determine whether it is more likely than not that deferred tax assets are realizable.
ASC 740 provides guidance on the minimum threshold that an uncertain income tax benefit is required to meet before it can be
recognized in the financial statements and applies to all income tax positions taken by a company. ASC 740 contains a two-
step approach to
recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being
realized upon settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded.
Uncertain income tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition
threshold. j2 Global recognized accrued interest and penalties
related to uncertain income tax positions in income tax expense on its consolidated
statement of operations.
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