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J2 GLOBAL, INC.
FORM 10-K
(Annual Report)
Filed 03/02/15 for the Period Ending 12/31/14
Address 6922 HOLLYWOOD BLVD
LEGAL DEPT - 5TH FLOOR
LOS ANGELES, CA 90028
Telephone 3238609200
CIK 0001084048
Symbol JCOM
SIC Code 4822 - Telegraph and Other Message Communications
Industry Communications Services
Sector Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2015, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    J2 GLOBAL, INC. FORM 10-K (Annual Report) Filed 03/02/15 for the Period Ending 12/31/14 Address 6922 HOLLYWOOD BLVD LEGAL DEPT - 5TH FLOOR LOS ANGELES, CA 90028 3238609200 0001084048 JCOM 4822 - Telegraph and Other Message Communications Communications Services Services 12/31 Telephone CIK Symbol...

  • Page 2
    ..., Los Angeles, California 90028, (323) 860-9200 (Address and telephone number of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title of class) Indicate by check...

  • Page 3
    ... -2123 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 123 123...

  • Page 4
    ... sales and enhance productivity, mobility, business continuity and security. Our eFax® and MyFax® online fax services enable users to receive faxes into their email inboxes and to send faxes via the Internet. eVoice® and Onebox® provide our customers a virtual phone system with various available...

  • Page 5
    ...we acquired on February 10, 2014, provides online backup with added file-sync features for professionals and individuals. Email and Customer Relationship Management FuseMail® offers hosted email security, email encryption and email archival services to businesses. These solutions are hosted offsite...

  • Page 6
    ...data center in Los Angeles and several remote disaster recovery facilities. We connect our POPs to our central data centers via redundant, and often times diverse, Virtual Private Networks ("VPNs") using the Internet. Our network is designed to deliver value-added user applications, customer support...

  • Page 7
    ... speed and mobile network speed. Our desktop solutions test connections to the Internet as well as on internal networks. Our mobile apps test cellular connections and Wi-Fi speeds. AskMen.com is a leading online source of information and advice focused on men's lifestyles. AskMen.com features the...

  • Page 8
    ... of the patent(s) in suit, a permanent injunction against continued infringement and attorneys' fees, interest and costs. We own and use a number of trademarks in connection with our services, including word and logo trademarks for eFax, MyFax, eFax Corporate, eVoice, KeepItSafe, Fusemail, Onebox...

  • Page 9
    ... ancillary services. Currently, a significant number of our cloud services customers 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...

  • Page 10
    ... our Business Cloud Services segment's network is fax related. That segment's success is therefore dependent upon the continued use of fax as a messaging medium and/or our ability to diversify our service offerings and derive more revenue from other services, such as voice, online backup, email and...

  • Page 11
    ... new methods for accessing the Internet become available, including through alternative devices, we may need to enter into amended agreements with existing third-party providers to cover the new devices. We may be unable to monetize the activity on these alternative devices including mobile handsets...

  • Page 12
    ...accept credit cards for payment and our subscriber base could decrease significantly. A significant number of our paid cloud services subscribers authorize us to bill their credit card accounts directly for all service fees charged by us. If people pay for these services with stolen credit cards, we...

  • Page 13
    ... media companies as well as from social networking sites, traditional print and broadcast media, general purpose and vertical search engines and various e-commerce sites. Several of our competitors offer an integrated variety of Internet products, advertising services, technologies, online services...

  • Page 14
    ... to indemnify our resellers and users for similar claims made against them. Any claims against us, whether or not meritorious, could require us to spend significant time and money in litigation, pay damages, develop new intellectual property or acquire licenses to intellectual property that is...

  • Page 15
    ... the Internet and/or outsourced messaging and communications solutions and so our operations in international markets may not develop at a rate that supports our level of investments. As we continue to grow our international operations, adverse currency fluctuations and foreign exchange controls...

  • Page 16
    ... payments on our indebtedness; place us at a competitive disadvantage compared to our competitors that have less indebtedness; and limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy...

  • Page 17
    ... us and may limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions, or otherwise restrict our activities or business plans. These include restrictions on j2 Cloud Service's ability to incur additional indebtedness; create liens; engage in sale-leaseback...

  • Page 18
    ... of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing at the...

  • Page 19
    ...flows. In August 2005, the FCC reclassified wireline broadband Internet access services (i.e., DSL) as information services. The decision enables incumbent local exchange carriers to charge higher rates for underlying broadband transmission service to competitive local exchange carriers that service...

  • Page 20
    ... also be subject to any new laws and regulations directly applicable to our domestic and international activities. Further, the application of existing laws to us or our subsidiaries regulating or requiring licenses for certain businesses of our advertisers including, for example, distribution of...

  • Page 21
    ...financial condition, operating results and cash flows. Our business could suffer if we cannot obtain or retain DIDs, are prohibited from obtaining local numbers or are limited to distributing local numbers to only certain customers. The future success of our DID-based cloud services business depends...

  • Page 22
    ... the sending or receiving of email messages, the cost of providing our services would increase and, if significant, could materially adversely affect our business, prospects, financial condition, operating results and cash flows. Risks Related To Our Stock The fundamental change purchase feature of...

  • Page 23
    ...1.75 to 1. While j2 Cloud Services is currently in compliance with such covenants, its ability to comply with such covenants is subject to conditions outside its control. If we cannot obtain cash from our subsidiaries, we may not be able to pay dividends on our stock, pay interest on the Convertible...

  • Page 24
    ... or competitive developments affecting our markets; Investor 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...

  • Page 25
    ... The Massachusetts Appellate Tax Board has not yet issued a scheduling order. On January 18, 2013, Paldo Sign and Display Co. ("Paldo") filed an amended complaint adding two j2 Global affiliates and a former j2 Canada employee as additional defendants in an existing purported class action pending in...

  • Page 26
    ...of himself and a purported nationwide class of allegedly similarly situated persons. On August 26, 2014, Law Enforcement Officers, Inc. and IV Pit Stop, Inc. (collectively, "LEO") filed a purported class action against the same j2 Global affiliate in Los Angeles Superior Court. The complaint alleges...

  • Page 27
    ... 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 Global Select Market...

  • Page 28
    ... of restricted stock issued to employees. Equity Compensation Plan Information The following table provides information as of December 31, 2014 regarding shares outstanding and available for issuance under j2 Global's existing equity compensation plans: Number of Securities Remaining Available for...

  • Page 29
    ...the Securities Act of 1933, as amended, or the Exchange Act. The following graph compares the cumulative total stockholder return for j2 Global, the NASDAQ Computer Index and an index of companies that j2 Global has selected as its peer group in the cloud service for business space. j2 Global's peer...

  • Page 30
    [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] - 29 -

  • Page 31
    ... income taxes Income tax expense Net income Less net income attributable to noncontrolling interest Less extinguishment of Series A preferred stock Net income attributable to j2 Global, Inc. common shareholders Net income per common share: Basic Diluted Weighted average shares outstanding: Basic...

  • Page 32
    ...j2 Global", "the Company", "our", "us" or "we"), is a leading provider of Internet services. Through our Business Cloud Services Division, we provide cloud services to businesses of all sizes, from individuals to enterprises, and license our intellectual property ("IP") to third parties. Our Digital...

  • Page 33
    ... of services, levels of services and the usage levels of those services across our Cloud Business Customer base. (2) Cloud Business Customers is defined as paying direct inward dialing numbers ("DIDs") for fax and voice services, and direct and resellers' accounts for other services. (3) Cancel Rate...

  • Page 34
    ...'s estimated useful life. j2 Global's Business Cloud Services also include patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 Global in exchange for the grant of non-exclusive...

  • Page 35
    ... method. The measurement of share-based compensation expense is based on several 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, dividend rate and award cancellation...

  • Page 36
    ... related to changes in all other unobservable inputs are reported in operating income. Income Taxes We account 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...

  • Page 37
    ... tax positions are fully supportable. We adjust these reserves when changing events and circumstances arise. Non-Income Tax Contingencies We are currently under audit by various state, local and foreign taxing authorities for direct and indirect non-income related taxes, including Canadian sales tax...

  • Page 38
    ... sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time. As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs...

  • Page 39
    ..." customer subscription revenues and "variable" revenues generated from actual usage of our services. We also generate Business Cloud Services revenues from IP licensing. Digital Media revenues primarily consist of advertising revenues, fees paid for generating business leads, and licensing and sale...

  • Page 40
    ... and voice transmission, DIDs, network operations, customer service, editorial and production costs, online processing fees and equipment depreciation. The increase in cost of revenues for the year ended December 31, 2014 was primarily due to an increase in costs associated with businesses acquired...

  • Page 41
    ... assets, personnel costs relating to acquisitions closed during 2013 and 2014, additional professional fees and bad debt expense. The increase in general and administrative expense from 2012 to 2013 was primarily due to personnel costs relating to acquisitions closed during 2012 and 2013 and an...

  • Page 42
    ... corporations by the local government in that jurisdiction. The effective tax rate measures the taxes paid as a percentage of pretax profit. The effective tax rate can differ from the statutory tax rate when a company can exempt some income from tax, claim tax credits, or due to the effect of book...

  • Page 43
    ... of revenues for 2014 decreased from the prior comparable period primarily due to acquisitions during the fiscal year which increased network operation costs and depreciation. In addition, acquisitions historically have lower initial profitability than our existing business until synergies with...

  • Page 44
    .... Segment operating expenses of $118.3 million in 2014 increased $10.9 million from the prior comparable period primarily due to business acquisitions subsequent to the prior comparable period, partially offset by reduced operating costs as the Digital Media segment leverages its scale and completes...

  • Page 45
    ... December 24, 2014, j2 Global initiated a cash tender offer to acquire all of the outstanding shares of Carbonite for cash consideration of $15.00 per share, subject to the terms and conditions described in our tender offer documents (see the Company's Current Report on Form 8-K, filed with the SEC...

  • Page 46
    ... from the sale of the Convertible Notes, proceeds from the exercise of stock options and excess tax benefit from share-based compensation, partially offset by dividends paid, deferred payments for acquisitions and the repurchase of stock. Net cash used in financing activities in 2013 was primarily...

  • Page 47
    ...amounts in connection with certain business acquisitions. These amounts primarily represent certain consulting and Board of Director fee arrangements and software license commitments. As of December 31, 2014 , our liability for uncertain tax positions was $37.6 million . The future payments related...

  • Page 48
    ... operating strategies. As currency exchange rates change, translation of the income statements of the international businesses into U.S. Dollars affects year-over-year comparability of operating results, the impact of which is immaterial to the comparisons set forth in this Annual Report on Form 10...

  • Page 49
    .... We currently do not have derivative financial instruments for hedging, speculative or trading purposes and therefore are not subject to such hedging risk. However, we may in the future engage in hedging transactions to manage our exposure to fluctuations in foreign currency exchange rates. - 48...

  • Page 50
    ... in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), j2 Global, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in...

  • Page 51
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders j2 Global, Inc. Los Angeles, California We have audited the accompanying consolidated balance sheet of j2 Global, Inc. and subsidiaries (collectively, the "Company") as of December 31, 2013 and the ...

  • Page 52
    ... Short-term investments Accounts receivable, net of allowances of $3,685 and $4,105, respectively Prepaid expenses and other current assets Deferred income taxes Total current assets Long-term investments Property and equipment, net Trade names, net Patent and patent licenses, net Customer...

  • Page 53
    ... income taxes Income tax expense Net income Less net income attributable to noncontrolling interest Less extinguishment of Series A preferred stock Net income attributable to j2 Global, Inc. common shareholders Net income per common share: Basic Diluted Weighted average shares outstanding: Basic...

  • Page 54
    ... on available-for-sale investments, net of tax expense of $2,757, $2,447 and $646 for the year ended 2014, 2013 and 2012, respectively Other comprehensive income (loss), net of tax Comprehensive Income Net income attributable to noncontrolling interest Comprehensive income attributable to j2 Global...

  • Page 55
    ...stock under employee stock purchase plan Exercise of stock options Mandatorily redeemable financial instrument Dividends paid Excess tax benefits from share-based compensation Deferred payments for acquisitions Other Net cash (used in) provided by financing activities Effect of exchange rate changes...

  • Page 56
    ... of stock options Issuance of shares under Employee Stock Purchase Plan Equity portion of convertible debt Vested restricted stock Repurchase and retirement of common stock Extinguishment of Series A preferred stock Exchange of Series B preferred stock Share based compensation Excess tax benefit...

  • Page 57
    2014 47,409,514 $ 474 - $ - $ - - $ - $ - $ 273,304 - $ - $ 553,584 $ (7,127) $ 820,235 $ - $ 820,235 See Notes to Consolidated Financial Statements - 55 -

  • Page 58
    ... ("j2 Global" or the "Company"), is a leading provider of Internet services. Through its Business Cloud Services Division, the Company provides cloud services to businesses of all sizes, from individuals to enterprises, and licenses its intellectual property ("IP") to third parties. The Digital...

  • Page 59
    ...'s estimated useful life. j2 Global's Business Cloud Services also include patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 Global in exchange for the grant of non-exclusive...

  • Page 60
    ... of acquisition and evaluates such determination at each balance sheet date. Held-to-maturity securities are those investments which the Company has the ability and intent to hold until maturity and are recorded at amortized cost. Available-for-sale securities are those investments j2 Global does...

  • Page 61
    ...less. The Company has capitalized certain internal use software and website development costs which are included in property and equipment. The estimated useful life of costs capitalized is evaluated for each specific project and ranges from 1 to 5 years. (m) Long-Lived Assets j2 Global accounts for...

  • Page 62
    ... 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...

  • Page 63
    ...line method. The measurement of share-based compensation expense is based on several 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, dividend rate and award cancellation...

  • Page 64
    ...The Company has completed the following acquisitions during the year ending December 31, 2014, paying the purchase price in cash for each transaction: (a) all of the shares of City Numbers, a Birmingham, UK-based worldwide provider of inbound local, national and international toll free phone numbers...

  • Page 65
    Livedrive®, a UK-based provider of online backup with added file sync features for professionals and individuals; (d) certain assets of Faxmate, a Brisbane-based provider of Internet fax; (e) all of the shares of Critical Software Ltd., a UK-based Email Security and Management company operating ...

  • Page 66
    ...(e) Email Protection Agency Limited, a UK-based provider of email security, email management and network security services; (f) TechBargains.com, the leading deal aggregation website for electronic products; and (g) certain other immaterial share and asset acquisitions in the Business Cloud Services...

  • Page 67
    ... purchase consideration as follows (in thousands): Assets and Liabilities Accounts receivable Property and equipment Other assets Deferred tax asset Software Content Trade name Customer relationship Advertiser Relationship Other intangibles Goodwill Deferred revenue Other accrued liabilities Total...

  • Page 68
    ... interest) as follows (in thousands): Assets and Liabilities Accounts receivable Property and equipment Software Other assets Deferred tax asset Trade name Customer relationship Advertiser relationship Licensing relationships Other intangibles Goodwill Deferred revenue Other accrued liabilities...

  • Page 69
    ... of short and long-term investments are recorded using the specific identification method. The following table summarizes j2 Global's debt securities designated as available-for-sale, classified by the contractual maturity date of the security (in thousands): December 31, 2014 Due within 1 year Due...

  • Page 70
    ...,737 At December 31, 2014 and 2013, corporate and governmental debt securities, which have a fixed interest rate, were recorded as available-for-sale. There have been no significant changes in the maturity dates and average interest rates for the Company's investment portfolio and debt obligations...

  • Page 71
    ... when purchasing similar securities. The cash flow model incorporates actual cash flows from the securities through the current period and then projects the remaining cash flows using relevant interest rate curves over the remaining term. These cash flows are discounted using a number of assumptions...

  • Page 72
    ... equity securities are classified within Level 1. The Company values these Level 1 investments using quoted market prices. The Company's debt investments, time deposits and commercial paper, all of which have counterparties with high credit ratings, are classified within Level 2. The Company values...

  • Page 73
    ... are determined using quoted market prices or dealer quotes for instruments with similar maturities and other terms and credit ratings, which are Level 2 inputs. If none of the aforementioned information is available, the fair value of these securities are determined using cash-flow models of...

  • Page 74
    ... reporting period, management reviews the inputs to measure the fair value measurements of financial and non-financial assets and liabilities to determine when transfers between levels are deemed to have occurred. On September 30, 2014, management reevaluated the inputs of its Level 1 assets used...

  • Page 75
    ... acquired in a business combination. Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. Intangible assets resulting from the acquisitions of entities accounted for using the purchase method...

  • Page 76
    ...test for intangible assets with indefinite lives for fiscal 2014 using a quantitative assessment primarily taking into consideration a discounted cash flow analysis of the relief of royalty payments. j2 Global concluded that there were no impairments in 2014, 2013 and 2012. Intangible Assets Subject...

  • Page 77
    ... as of December 31, 2014 , which is recorded within longterm other assets. The net proceeds were available for general corporate purposes, including acquisitions. Interest is payable semi-annually on February 1 and August 1 of each year. j2 Cloud Services, Inc. has the option to call the Senior...

  • Page 78
    ...of the product of (a) the closing sale price of j2 Global common stock on each such trading day and (b) the applicable conversion rate on each such trading day; (iii) if j2 Global calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the business day...

  • Page 79
    ... market prices or dealer quotes for the Convertible Notes, if available. If such information is not available, the fair value is determined using cash-flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. As of December 31, 2014...

  • Page 80
    ...Instrument On November 9, 2012, the Company acquired substantially all of the issued and outstanding capital stock of Ziff Davis, Inc. ("Ziff Davis"). In connection with the acquisition, the issued and outstanding capital stock was exchanged for shares of Series A Cumulative Participating Preferred...

  • Page 81
    ... The Massachusetts Appellate Tax Board has not yet issued a scheduling order. On January 18, 2013, Paldo Sign and Display Co. ("Paldo") filed an amended complaint adding two j2 Global affiliates and a former j2 Canada employee as additional defendants in an existing purported class action pending in...

  • Page 82
    ...of himself and a purported nationwide class of allegedly similarly situated persons. On August 26, 2014, Law Enforcement Officers, Inc. and IV Pit Stop, Inc. (collectively, "LEO") filed a purported class action against the same j2 Global affiliate in Los Angeles Superior Court. The complaint alleges...

  • Page 83
    Operating Leases j2 Global leases certain facilities and equipment under non-cancelable operating leases which expire at various dates through 2024. Office and equipment leases are typically for terms of three to five years and generally provide renewal options for terms up to an additional five ...

  • Page 84
    ...(by using our services) are not subject to various telecommunication taxes. Moreover, the Company does not believe that its business and its users (by using our services) are subject to other indirect taxes, such as sales and use tax, value added tax ("VAT"), goods and services tax, business tax and...

  • Page 85
    ..., as amended (the "Internal Revenue Code"). j2 Global currently estimates that all of the above-mentioned federal NOLs will be available for use before their expiration. These NOLs expire through the year 2031 . As of December 31, 2014 and 2013, the Company has foreign tax credits of $11.1 million...

  • Page 86
    ...result in payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets. As of December 31, 2014 , the total amount of unrecognized tax benefits was $34.6 million , of which $32.7 million , if recognized, would affect the Company's effective tax rate. As of...

  • Page 87
    ...by the U.S. Internal Revenue Service ("IRS") for tax years 2009 through 2011. The Company has appealed the IRS tax examiner's decision regarding transfer pricing for tax years 2009 and 2010 to the IRS appeals office, and that process remains on-going. j2 Global is currently under income tax audit by...

  • Page 88
    ... price will be equal to the fair market value of such share as determined by the Company's Board of Directors in its sole good faith judgment. Preferred Stock Exchange In November 2014, the Company provided holders of j2 Series A Stock and j2 Series B Stock an exchange right in which shares...

  • Page 89
    ... fees). Periodically, participants in j2 Global's stock plans surrender to the Company shares of j2 Global stock to pay the exercise price or to satisfy tax withholding obligations arising upon the exercise of stock options or the vesting of restricted stock. During the year ended December 31, 2014...

  • Page 90
    ... authorized shares of common stock that may be used for 2007 Plan purposes is 4,500,000 . Options under the 2007 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the fair market value of j2 Global's common stock on...

  • Page 91
    ... remaining requisite service period). Fair Value Disclosure j2 Global uses the Black-Scholes option pricing model to calculate the fair value of each option grant. The expected volatility is based on historical volatility of the Company's common stock. The Company estimates the expected term based...

  • Page 92
    ... (in thousands): Year Ended December 31, 2014 Cost of revenues Operating expenses: Sales and marketing Research, development and engineering General and administrative $ 345 1,944 721 5,898 $ Restricted Stock j2 Global has awarded restricted stock and restricted stock units to its Board of Directors...

  • Page 93
    ... can have up to 15% of their earnings withheld, up to certain maximums, 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...

  • Page 94
    ... Information The Company's business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. j2 Global's reportable business segments are: (i) Business Cloud Services; and (ii) Digital Media. Segment accounting...

  • Page 95
    ...on reportable segments and reconciliation to consolidated income from operations is as follows (in thousands): Years Ended December 31, 2014 Revenue by segment: Business Cloud Services Digital Media Elimination of inter-segment revenues Total revenue Direct costs by segment : Business Cloud Services...

  • Page 96
    ...the full and punctual payment of the Senior Notes issued by its wholly owned subsidiary, j2 Cloud Services, Inc. j2 Cloud Services, Inc. is subject to restrictions on dividends in its existing indenture with respect to the Senior Notes. While substantially all of the Company's assets (other than the...

  • Page 97
    ... restrict j2 Cloud Services, Inc.'s ability to pay dividends to j2 Global, Inc. The following condensed consolidating financial statements present, in separate columns, financial information for (i) j2 Global, Inc. (the "Parent") on a parent-only basis, (ii) j2 Cloud Services, Inc., (iii) the non...

  • Page 98
    ...cash equivalents Short-term investments Accounts receivable, net Prepaid expenses and other current assets Deferred income taxes Intercompany receivable Total current assets Long-term investments Property and equipment, net Trade names, net Patent and patent licenses, net Customer relationships, net...

  • Page 99
    Long-term debt Capital lease, non-current Liability for uncertain tax positions Deferred income taxes Deferred revenue, non-current Other long-term liabilities Total liabilities Common stock, $0.01 par value Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) ...

  • Page 100
    ...cash equivalents Short-term investments Accounts receivable, net Prepaid expenses and other current assets Deferred income taxes Intercompany receivable Total current assets Long-term investments Property and equipment, net Trade names, net Patent and patent licenses, net Customer relationships, net...

  • Page 101
    Total current liabilities Long-term debt Liability for uncertain tax positions Deferred income taxes Deferred revenue, non-current Other long-term liabilities Total liabilities Common stock, $0.01 par value Additional paid-in capital - common Retained earnings Accumulated other comprehensive loss ...

  • Page 102
    ...) Non-guarantor Subsidiaries 412,217 95,386 316,831 105,812 16,625 97,487 219,924 96,907 - 284 (283) 96,906 19,855 77,051 - - 77,051 $ $ Consolidating Adjustments j2 Global, Inc. Revenues: Total revenues Cost of revenues Gross profit Operating expenses: Sales and marketing Research, development and...

  • Page 103
    j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME Year Ended December 31, 2013 (In thousands, except share and per share data) Non-guarantor ...,522 j2 Global, Inc. Revenues: Total revenues Cost of revenues Gross profit Operating expenses: Sales and marketing Research, development and ...

  • Page 104
    ...) Non-guarantor Subsidiaries $ 206,045 38,039 168,006 27,148 6,746 25,214 59,108 108,898 - 3,739 (242) 105,401 13,779 91,622 83 $ 91,539 $ $ Consolidating Adjustments j2 Global, Inc. Revenues: Total revenues Cost of revenues Gross profit Operating expenses: Sales and marketing Research, development...

  • Page 105
    ... 2014 (In thousands) Non-guarantor Subsidiaries $ 77,051 $ Consolidating Adjustments j2 Global, Inc. Net income $ Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax expense (benefit) Unrealized gain (loss) on available-for-sale investments, net of tax...

  • Page 106
    ...) Unrealized gain (loss) on available-for-sale investments, net of tax expense (benefit) Other comprehensive income, net of tax Comprehensive income $ Net loss attributable to noncontrolling interest Comprehensive income attributable to j2 Global, $ Inc. - j2 Cloud Services, Inc. $ 107,522 (43...

  • Page 107
    ...) Unrealized gain (loss) on available-for-sale investments, net of tax expense (benefit) Other comprehensive income, net of tax Comprehensive income Net loss attributable to noncontrolling interest Comprehensive income attributable to j2 Global, $ Inc. j2 Cloud Services, Inc. - $ 121,580 $ 521...

  • Page 108
    ..., net of effects of business combinations: Decrease (increase) in: Accounts receivable Prepaid expenses and other current assets Other assets Increase (decrease) in: Accounts payable and accrued expenses Income taxes payable Deferred revenue j2 Cloud Services, Inc. j2 Global Consolidated 125,327...

  • Page 109
    ... common and restricted stock Issuance of common stock under employee stock purchase plan Exercise of stock options Mandatorily redeemable preferred stock Dividends paid Excess tax benefits from share-based compensation Deferred payments for acquisitions Other Intercompany Net cash (used in) provided...

  • Page 110
    Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period - 226,790 - $ 226,790 $ - 2,...

  • Page 111
    ..., net of effects of business combinations: Decrease (increase) in: Accounts receivable Prepaid expenses and other current assets Other assets Increase (decrease) in: Accounts payable and accrued expenses Income taxes payable j2 Cloud Services, Inc. j2 Global Consolidated - $ 107,522 (61...

  • Page 112
    ... of common stock and restricted stock Issuance of common stock under employee stock purchase plan Exercise of stock options Mandatorily redeemable preferred stock Dividends paid Excess tax benefits from share-based compensation Deferred payments for acquisitions Other Intercompany Net cash (used in...

  • Page 113
    Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period - - - $ - $ - (42,306) 76,712 ...

  • Page 114
    ..., net of effects of business combinations: Decrease (increase) in: Accounts receivable Prepaid expenses and other current assets Other assets Increase (decrease) in: Accounts payable and accrued expenses Income taxes payable j2 Cloud Services, Inc. j2 Global Consolidated - $ 121,580 (91...

  • Page 115
    ... common and restricted stock Issuance of common stock under employee stock purchase plan Exercise of stock options Mandatorily redeemable preferred stock Dividends paid Excess tax benefits from share-based compensation Deferred payments for acquisitions Other Intercompany Net cash (used in) provided...

  • Page 116
    Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of $ period - - - - $ - 31,588 45,124 ...

  • Page 117
    ... 31, 2014, 2013 and 2012, j2 Global recorded the tax benefit from the exercise of stock options and restricted stock as a reduction of its income tax liability of $10.2 million , $7.1 million and $3.3 million , respectively. Included in the purchase prices of the acquisitions closed during the...

  • Page 118
    ... Ended December 31, 2014 Affected Line Item in the Statement of Income Cumulative translation adjustment $ 116 116 (28) $ - - - Other expense (income), net Total, before income taxes Income tax expense (benefit) Total, net of tax $ Unrealized gain (loss) on available-for-sale investments 88...

  • Page 119
    ... of results for any future period. Year Ended December 31, 2014 Fourth Quarter Revenues Gross profit Net income Net income attributable to j2 Global, Inc. common shareholders Net income per common share: Basic Diluted Weighted average shares outstanding Basic Diluted $ 167,144 138,145 32,754 31,763...

  • Page 120
    ...in thousands): December 31, 2014 ASSETS Cash and cash equivalents Accounts receivable Prepaid expenses and other current assets Deferred income taxes Total current assets Property and equipment, net Trade names, net Patent and patent licenses, net Customer relationships, net Goodwill Other purchased...

  • Page 121
    ... transaction, the Company acquired Firstway Digital Limited, an Ireland global provider of digital fax services. On February 13, 2015, in a cash transaction, the Company acquired certain assets of inHouseIT, Inc. (d/b/a Nuvotera), a California based provider of email security services. On February...

  • Page 122
    ... under the Exchange Act) for j2 Global. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework...

  • Page 123
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders j2 Global, Inc. Los Angeles, California We have audited j2 Global, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by...

  • Page 124
    ... III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated by reference to the information to be set forth in our proxy statement (" 2014 Proxy Statement") for the 2015 annual meeting of stockholders to be filed with the SEC within 120...

  • Page 125
    ... to j2 Global, Inc. Second Amended and Restated 1997 Stock Option Plan (8) 10.2 j2 Global, Inc. 2007 Stock Plan (9) 10.3 Amended and Restated j2 Global, Inc. 2001 Employee Stock Purchase Plan (7) 10.4 Letter Agreement dated April 1, 2001 between j2 Global, Inc. and Orchard Capital Corporation (4) 10...

  • Page 126
    ... to j2 Global's Current Report on Form 8-K filed with the Commission on November 25, 2013. (16) Incorporated by reference to j2 Global's Current Report on Form 8-K filed with the Commission on January 3, 2014. (17) Incorporated by reference to j2 Global's Current Report on Form 8-K filed with...

  • Page 127
    ... authorized, on March 2, 2015 . j2 Global, 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 128
    ...) Additions: Charged to Costs and Expenses 4,702 4,381 3,134 3,661 4,289 5,536 Description Year Ended December 31, 2014: Allowance for doubtful accounts Deferred tax asset valuation allowance Year Ended December 31, 2013: Allowance for doubtful accounts Deferred tax asset valuation allowance Year...

  • Page 129
    EXHIBIT 21 List of Subsidiaries of j2 Global, Inc. Name Electric Mail (Ireland) Limited j2 Global Holdings Limited j2 Global Ireland Limited j2 Global Canada, Inc. Ziff Davis, LLP IGN Entertainment, Inc. State or Other Jurisdiction of Incorporation Ireland Ireland Ireland Ontario, Canada United ...

  • Page 130
    ...of j2 Global, Inc. of our reports dated March 2, 2015 , relating to the consolidated financial statements and financial statement schedule, and the effectiveness of j2 Global, Inc.'s internal control over financial reporting, which appear in this Form 10-K. /s/ BDO USA, LLP BDO USA, LLP Los Angeles...

  • Page 131
    ...is March 2, 2015 , relating to our audit of the consolidated financial statements and the financial statement schedule, which appear in this Annual Report on Form 10-K of j2 Global, Inc. and subsidiaries for the year ended December 31, 2014. /s/ SingerLewak LLP Los Angeles, California March 2, 2015

  • Page 132
    EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Nehemia Zucker, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of j2 Global, Inc.; Based on my knowledge, this report does not contain any untrue ...

  • Page 133
    ... based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected...

  • Page 134
    ... OF 2002 In connection with the Annual Report on Form 10-K of j2 Global, Inc. (the "Company") for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Nehemia Zucker, as Chief Executive Officer (Principal Executive Officer) of the...