eFax 2012 Annual Report Download - page 74

The Company's effective rate for each year is normally lower than the 35%
U.S. federal statutory plus applicable state income tax rates primarily due to earnings of j2
Global's subsidiaries outside of the U.S. in jurisdictions where the effective tax rate is lower than in the U.S.
Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Temporary
differences and carryforwards which give rise to deferred tax assets and liabilities are as follows (in thousands):
The Company had approximately $14.7 million and $13.1 million in deferred tax assets as of December 31, 2012
and 2011, respectively, related primarily to tax credit
carryforwards, net operating loss carryforwards and differences in share-
based compensation between its financial statements and its tax returns. Based on the weight of
available evidence, the Company assesses whether it is more likely than not that some portion or all of a deferred tax asset will not be realized. If necessary, j2 Global records a
valuation allowance sufficient to reduce the deferred tax asset to the amount that is more likely that not to be realized. The deferred tax assets should be realized through future
operating results and the reversal of temporary differences.
During 2012 and 2011, j2 Global sold certain debt securities which produced neither a tax gain nor loss. Some of the sold debt securities were impaired in 2009
resulting in a deferred tax asset and associated valuation allowance of $2.3 million . As a result of the sale, a portion of the valuation allowance was reversed.
As of December 31, 2012 , the Company had federal and state (California) net operating loss carryforwards (“NOLs”) of $5.9 million and $5.9 million
, respectively,
after considering substantial restrictions on the utilization of these NOLs due to “ownership changes” as defined in the Internal Revenue Code of 1986, as amended (the “
Internal
Revenue Code”). j2 Global estimates that all of the above-
mentioned federal NOL will be available for use before its expiration. However, the Company does not expect the
state NOL to be utilizable and thus recorded a full valuation allowance against it as of December 31, 2012 . These NOLs expire through the year 2028 for the federal and
2017
for the state. In addition, as of December 31, 2012 and 2011, the
- 72 -
Years Ended December 31,
2012
2011
Deferred tax assets:
Net operating loss carryforwards
2,890
3,480
Tax credit carryforwards
7,600
1,461
Accrued expenses
821
977
Allowance for bad debt
1,028
690
Share-based compensation expense
5,990
5,818
Impairment of investments
355
460
Gain on sale of intangible assets
137
137
Deferred revenue
270
587
State taxes
1,534
—
Other —
—
20,625
13,610
Less: Valuation Allowance
(5,918
)
(515
)
Total deferred tax assets
14,707
13,095
Deferred tax liabilities:
State taxes — (
248
)
Basis difference in fixed assets
(84
)
(2,361
)
Basis difference in intangible assets
(38,864
)
(17,074
)
Prepaid insurance
(224
)
(284
)
Other
(5,018
)
(442
)
Total deferred tax liabilities
(44,190
)
(20,409
)
Net deferred tax assets
(29,483
)
(7,314
)