CFO Essentials Workshop - Los Angeles

© 2010 SingerLewak. All rights reserved.

JULY 19, 2011 – LOS ANGELES

TM

Opening Remarks

Today’s Workshop Format

Introducing our Distinguished Panelists:

The CFO Essentials SingerLewak’s POV

Jim Pitrat, CPA - SingerLewak LLP

Bradley Nii - B. Riley

Lawrence M. Braun - Sheppard Mullin

Gale Moore, CPA - SingerLewak LLP

AGENDAJULY 19, 2011 – LOS ANGELES

Kathy Griggs – J2 Global Communications

Jim Pitrat, SingerLewak LLP

Jim Pitrat leads SingerLewak’s Assurance & Advisory practice where he oversees firm-wide assurance & advisory initiatives. Jim has

experience with both private and publicly traded companies and has also advised on cost management, internal controls, corporate

restructurings, and mergers and acquisitions. Jim has client service responsibilities in the business sectors of investor-backed private

companies and public companies. Jim received his Bachelor of Science degree in Business Administration from the University of Arizona in

1993 and his Master’s of Business Administration in 1997. Jim is a member of AICPA, the Los Angeles Venture Association, the Software

Council of Southern California and the Association for Capital Growth. Jim has been a guest instructor at California Institute of Technology’s

Entrepreneur Program, the University of Arizona Small Business Incubator Program, and USC’s EC2 Incubator Program. He has also spoken

on panels for Technology Council of Southern California and the California Society of CPAs. Jim has written for Los Angeles Business Journal,

American Venture Magazine, and Zone Magazine.

Brad Nii, B. Riley

Bradley Nii joined B Riley & Co. in 2010 as a Managing Director in the Firm’s Investment Banking Group. Prior to B Riley, Mr. Nii was Head of

the West Coast Sponsor Finance Group at American Capital where he managed a team of investment professionals and a portfolio of

mezzanine and minority equity investments. Prior to American Capital, Mr. Nii was a Senior Vice President in the Investment Banking Group

at Lehman Brothers, where he was involved in a number of transactions and financings totaling over $100 billion in value in a variety of

industry sectors.

Prior to joining Lehman Brothers, Mr. Nii was a certified public accountant with Ernst & Young for nine years.

OUR PANELJULY 19, 2011 – LOS ANGELES

Lawrence M. Braun, Sheppard Mullin

Larry Braun is the former Co-Chairman of the firm’s Corporate Practice Group. In addition to his law degree, Mr. Braun holds an M.B.A. in

Finance from the Kellogg School at Northwestern University and has attained the New Jersey C.P.A. Certificate Requirements. Mr. Braun was

previously a managing director of the largest private investment banking firm on the west coast. Mr. Braun is resident in the firm’s Los

Angeles office where he represents public and private companies in the areas of mergers and acquisitions, corporate finance, securities and

general business.

Mr. Braun is an advisor to clients ranging from family-owned businesses to multi-national corporations in many diverse industries such as

high-tech and computers, health care, consumer goods, aerospace and defense, and grocery and food service. His principal areas of

practice are general corporate law, corporate finance and securities law, mergers and acquisition transactions, contractual matters

(including licensing and distribution arrangements), healthcare transactions and general business counseling.

Gale Moore, SingerLewak LLP

Gale Moore is a partner in SingerLewak’s Orange County Assurance & Advisory practice. Gale has more than 20 years of experience

specializing in public and real estate-based companies, including Real Estate Investment Trust reporting and compliance. Her background

includes assisting companies with capital market transactions, IPOs, and participating on SOX readiness teams in reviewing control

documentation, remediation plans, and testing approaches. She was formerly a director with Deloitte & Touche LLP and has experience as a

corporate controller, a position that gave her valuable insight into the internal control process.


Kathy Griggs, J2 Global Communications

Kathy oversees all financial accounting and analysis and treasury functions of j2 Global. She joined the company in June 2007,

bringing with her over 25 years of experience with public and private technology companies. Prior to joining j2 Global, Kathy

had a consulting practice and prior to that, served as Chief Financial Officer of SonicWall, Inc., a publicly held Internet security

system manufacturer, as Chief Financial Officer of QAD Inc, an enterprise resource planning software company, and CFO with

Borland Software Corporation and Softbank Content Services. She has an MBA from the University of Southern California.


OUR PANEL

JIM PITRAT, SINGERLEWAKRISKS

SINGERLEWAK’S ESSENTIAL RISKS FOR

THE CFOIN THE MID-MARKET

2011

RISKSJIM PITRAT, SINGERLEWAK

RISKS

KEY SURVEY RESULTS

FORMULATING OUR “ESSENTIAL RISKS” WE REVIEW 2 KEY SURVEYS ALONG WITH REVIEWING OUR CLIENT CONCERNS

March 2011-Duke University / CFO Magazine 2011-Business Outlook

Survey

FEI CEO’s Top Challenges Survey

JIM PITRAT, SINGERLEWAK

RISKS

CFOs: OUTLOOK ROSIER -SOME SECTORS HIRING, BUT INFLATION A WORRY

• OPTIMISM AMONG CFO’S IS - HIGHEST SINCE 2007

• CFOs EXPECT EARNINGS GROWTH IN 2011 Earnings growth expected to jump 18% --compared to 9% in Asia

and 10% in Europe

Capital expenditures expected to jump 12% in 2011

R&D expenditures expected to grow by 4%

Over half the companies in the survey expect to build more

cash on their balance sheets


RISKS

CFOs: OUTLOOK ROSIER - SOME SECTORS HIRING, BUT INFLATION A WORRY (cont’d)

• CFOs EXPECT ONLY MODEST EMPLOYMENT GROWTH (1.2%) Some industries identify need for skilled workers (engineering,

product development, finance and accounting and sales)

• CFOs ARE CONCERNED ABOUT INFLATION• A 4% inflation would cut earnings growth in half• High concern about fuel and commodities

• 39% OF CFOs FIND BORROWING CONDITIONS HAVE IMPROVED

• However for companies <100MM, still say credit is tight• 39% OF COMPANIES EXPECT TO ACQUIRE ANOTHER COMPANY IN 2011


RISKS

CEOs 2011 TOP CHALLENGES FOR FINANCIAL EXECUTIVES

ECONOMIC RECOVERY AND THE US FISCAL OUTLOOK

HEALTH CARE LAW

FINANCIAL REGULATORY REFORM

GLOBAL CONVERGENCE OF US GAAP AND IFRS

PRIVATE COMPANY ACCOUNTING SYSTEM REFORM

UNCERTAIN TAX POSITIONS

BUSINESS TAXATION

PENDING INTERNATIONAL BUSINESS ISSUES

CLIMATE CHANGE


RISKS

SL’s “CFO ESSENTIAL RISKS” FOR 2011

We have identified the following 5 ESSENTIAL RISKS FOR CFOs in the Mid-Market

RISK DESCRIPTION RISK

CLASSEXAMPLE STRATEGIC IMPERATIVE “AT RISK” AND RISK DESCRIPTIONS

#1 MAINTAINING COMPLIANCE WITH INCREASED REGULATION

Compliance • Being out of compliance with new SEC rules• Impact related to changing Health Care• Impact related to Dodd-Frank

#2 ACCESS TO CREDIT AND FINANCING

Financial • Risk of being unable to Finance Growth under strategic imperatives• Risk of being unable to Finance Acquisitions• Risk of being unable to meet needs if economy slips or business

slips

#3 MANAGING GROWTH AND OPERATING IN A “LEAN” ENVIRONMENT

Operating • Engineering issues and quality problems• Over-hiring in a risky environment• Inventory shortages or cost issues related to inflationary pressures• Over-purchasing of inventory or over-producing due to inflationary

concerns and price volatility• Margin Pressures and impact on profitability• Suppliers taking on inventory risk for customers • Managing information and controlling IP


RISKS

SL’s “CFO ESSENTIAL RISKS” FOR 2011(cont’d)

We have identified the following 5 ESSENTIAL RISKS FOR CFOs in the Mid-Market

RISK DESCRIPTION RISK

CLASSEXAMPLE STRATEGIC IMPERATIVE “AT RISK” AND RISK DESCRIPTIONS

#4 ATTRACTING AND MANAGING TALENT

Operating • Unable to meet strategic needs, take advantage of the marketplace or manage strategic plan

• Unable to meet production requirements• Unable to meet sales requirements due to sales staff shortages• Unable to maintain top-quality talent in cost-sensitive environment

#5 KEEPING UP WITH ACCOUNTING STANDARDS AND ADAPTING TO IFRS CONVERGENCE

Compliance and financial

• Complexity causing financial reporting miscues• Out of compliance with financial reporting requirements• Fair Value and the complexities of Level 3 Values• IFRS Convergence—preparing for revenue and leases• Private Company GAAP


COMPANIES SHOULD DEVELOPAN EFFECTIVE RISK MANAGEMENT PROCESS

PLACE RISK MANAGEMENT IMPORTANCE AT BOARD LEVEL

IDENTIFIES THE TOTALITY OF RISKS THE ORGANIZATION (NOT

JUST FINANCIAL RISKS)

ANALYZES AND MEASURES THE SIGNIFICANCE OF EACH RISK

EVALUATES THE POTENTIAL COSTS OF THE AVAILABLE RISK

RESPONSE STRATEGIES.

DETERMINES WHETHER RISKS ARE BEING OVER OR UNDER

MANAGED AND PROVIDES FOR THE IDENTIFICATION

OF SOLUTIONS

RISKSJIM PITRAT, SINGERLEWAK

BRAD NII, B. RILEYCASH FLOW

CAPITAL MARKET INFLUENCES

GLOBAL INFLUENCES Sovereign debt situation has led to uncertainty in the market for much of the past quarter.

Recent resolutions have caused market to regain some confidence Asia is in a state of disarray with Japan slowly recovering from its catastrophic earthquake and

China’s inflation rate at a 3-year high, reaching 6.4% in June according to the CPI index, offset by a strong second quarter GDP growth rate of 9.5%.

DOMESTIC INFLUENCES Consumer spending in May was at its weakest pace in 20 months Lower energy prices in recent weeks, from highs experienced in April-May, have played a role in

market recovery over past month Housing Prices on the decline as the supply continues to outpace demand for houses both new

and existing Unemployment rose 0.1% to 9.2% in June, which is the highest level since

December of 2010 Federal Reserve impact


SOURCES OF CAPITAL FOR MIDDLE MARKET COMPANIES

EQUITY MARKETS IPO and Follow-On Equity Offerings are more prevalent in 2011 vs. 2010 with a volume increase

of 177.4% and 67.8% respectively Technology and Energy have represented 42 of the 78 IPO’s in 2011

ASSET BASED LENDERS Becoming the preferred debt instrument Highly flexible

TRADITIONAL DEBT Commercial lenders, SBICs, BDCs and Mezzanine Funds have become active capital providers

PRIVATE EQUITY Private equity coffers are ready to be deployed


STOCK PRICE INDEX YTD

1/3/1

1

1/9/1

1

1/15/1

1

1/21/1

1

1/27/1

1

2/2/1

1

2/8/1

1

2/14/1

1

2/20/1

1

2/26/1

1

3/4/1

1

3/10/1

1

3/16/1

1

3/22/1

1

3/28/1

1

4/3/1

1

4/9/1

1

4/15/1

1

4/21/1

1

4/27/1

1

5/3/1

1

5/9/1

1

5/15/1

1

5/21/1

1

5/27/1

1

6/2/1

1

6/8/1

1

6/14/1

1

6/20/1

1

6/26/1

1

7/2/1

1

7/8/1

1

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

Technology +1.3%Industrials +4.67%Energy +8.77%Health Care +11.01%


INITIAL PUBLIC OFFERINGS

Source: Renaissance Capital


FOLLOW – ON OFFERINGS

52 Registered Direct Offerings in 1H 2011 totaling $686 Million in value

2007 2008 2009 2010 2010 1H 2011 1H$0

$20$40$60$80

$100$120$140$160$180$200

0

100

200

300

400

500

600

700

Total Volume ($ billions) # of Transactions

Tran

sacti

on V

olum

e ($

bill

ions

)# of Transactions

Source: Capital IQ


KEYS TO SUCCESSFUL CAPITAL RAISES

HAVE A “CLEAN” STORY

CONSISTENT FINANCIAL RESULTS

TOP LINE GROWTH

STRONG OPERATING MARGIN AND FREE CASH FLOW

BARRIERS TO ENTRY

COMPETITIVE ADVANTAGE

REPUTABLE AUDITOR

SOX COMPLIANCE

MEET OR EXCEED YOUR PROJECTIONS!


7/13/09 10/13/09 1/13/10 4/13/10 7/13/10 10/13/10 1/13/11 4/13/11 7/13/11 $6

$8

$10

$12

$14

$16

800

900

1,000

1,100

1,200

1,300

1,400

Stock Price Capital Raises M&A S&P 500

KTO

S P

rice S

&P

500

KRATOS CASE STUDY – TWO YEARS

$18.72 million Registered Direct

$130 million Acquisition of Gichner Systems Group

$250 million private placement

$21.3 million acquisition of DEI Services Corp.

KTOS 2 year CAGR = 30%S&P 500 2 Year CAGR = 20%


DEBT MARKET

COMMERCIAL LENDERS ARE BECOMING MORE AGGRESSIVE Banks have spent the last couple of years bolstering their capital ratios and

are now seeking to diversify their loan book and deploy capital

BDC’S HAVE RETURNED AS A VIABLE ALTERNATIVE

Flexible capital but prefer predominantly cash pay

SBIC’S ARE HIGHLY ACTIVE IN THE LOWER MIDDLE MARKET

Very low cost of capital

Abilities to compete with commercial lenders for smaller deals

MEZZANINE CAPITAL IN EXCESS SUPPLY Reticent to over-leverage; competing on coupon pricing


DEBT MARKETS (cont’d)

ABLSENIORFACILITY

SUBDEBT

MEZZANINE

COVENANTS No, except collateral Yes Negative Probably

AMORTIZATION No Yes No No

RATE Low Low / Moderate Moderate / High High / Warrants

TENOR 3-4 years 4-5 years 5-6 years 6+ years

FIXED VS. FLOATING Floating Floating Fixed Fixed

LARGE PRICING GAPS BETWEEN AVERAGE AND SOLID CREDITS Companies that faired well during the recession with strong cash flows are

commanding better pricing and higher leverage multiples


M&A MARKET

DRIVERS OF M&A MARKET ACTIVITY Private Equity Pressure on strategics to grow in a stagnant economy

2005 2006 2007 2008 2009 2010 2010 1H 2011 1H $-

$200

$400

$600

$800

$1,000

500

1,000

1,500

2,000

2,500

3,000

3,500

Total Volume (in Billions) Total Number of Deals

Tra

nsact

ion V

olu

me (

$ b

illions)

# o

f Tra

nsa

ctio

ns

Source: Capital IQ


LARRY BRAUN, SHEPPARD MULLINM&A

ARE DEALS GETTING DONE?


• STRONG BUSINESSES COMMAND INTEREST & HIGH MULTIPLES

Very competitive

Valuation Multiples

Valuation multiples in the U.S. middle market have recovered from the levels

experienced in 2009, when valuations reached their lowest levels since 2001

and 2002.

Multiples were supported by increased confidence among M&A participants

amid the slow economic recovery as well as somewhat greater access to

debt financing.

STATE OF THE M&A MARKET

LARRY BRAUN, SHEPPARD MULLIN

MARKET IS ACTIVE

U.S. MIDDLE MARKET ENTERPRISE VALUE TO MEDIAN EBITDA AND REVENUE MULTIPLES

8.2x7.2x 7.3x 7.5x

8.6x

9.7x9.2x

9.9x9.5x

7.5x

8.6x9.0x

1.0x 0.9x 0.8x 0.9x 1.1x 1.1x 1.1x 1.0x 1.0x 0.9x 1.1x 1.1x

0.0x

3.0x

6.0x

9.0x

12.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM2011

Mul

tiple

s

EV / EBITDA EV / Revenue

Source: Dealogic and Robert W. Baird & Co. Incorporated M&A Market Analysis. LTM as of March 31.



• DISTRESSED MARKET CONTINUES TO BE ACTIVE

• STRATEGICS: BUYING

Market share/growth

Technology

Taking advantage of low prices

Enjoying the lack of PEGs



MARKET IS ACTIVE (cont’d)

• CROSS BORDER TRANSACTIONS• PEGS ARE PLAYING CATCH-UP

Selling poor performing portfolio companies

Selling “old” portfolio companies

Back in the market

Lots of dry powder

Lenders support quality credits

• SELLERS

Tired

Taking advantage of low cap gains rates




• FINANCING BECOMING AVAILABLE

• COST OF CAPITAL AT RECORD LOWS




• DEBT MULTIPLES SLOWLY RETURN

AVERAGE DEBT MULTIPLES OF MIDDLE MARKET LBO LOANS

Source: Dealogic and Robert W. Baird & Co. Incorporated M&A Market Analysis.




3.2x 3.2x 2.8x 2.7x 3.2x2.5x 3.0x 2.8x

3.4x 3.2x4.3x 4.0x 4.1x

4.7x 5.2x 5.4x

3.7x 4.1x

2.6x3.7x 3.4x

4.4x

0.8x 1.0x0.6x

1.4x 0.7x1.5x 0.8x

1.8x 0.8x 1.6x0.4x 1.3x 0.6x

0.7x0.4x

0.8x

0.8x0.8x

0.7x

0.3x 0.8x

0.3x4.0x 4.2x

3.4x4.1x 3.9x 4.0x 3.8x

4.6x4.2x

4.8x 4.7x5.3x

4.7x5.4x 5.6x

6.2x

4.5x4.9x

3.3x4.0x 4.2x

4.7x

0.0x

1.4x

2.8x

4.2x

5.6x

7.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Senior Debt / EBITDA Non-Senior Debt / EBITDA

• CAPITAL – EXPECTED RETURNS




• U.S. MIDDLE MARKET M&A ACTIVITY

5,833

3,938

3,410 3,694

3,961 3,862 3,872

3,635 3,606 3,300

5,312

1,267 1,089

$457

$275 $248 $274$342 $360

$409 $431

$289

$200

$346

$68 $94

$0

$200

$400

$600

$800

$1,000

0

1,240

2,480

3,720

4,960

6,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3/10 YTD

3/11 YTD

Deal V

alue ($ in billions)#

of D

eals

<$100MM $100MM-$499MM $500MM-$1B Deal Value



Source: Dealogic and Robert W. Baird & Co. Incorporated M&A Market Analysis.

• ACTIVITY

Overall U.S. M&A activity rebounded in 2010

Total Transactions 37%

Deal Value 29%

As of March 31, 2011

Total deal volume reached $333 Billion vs. $220 billion as of

March 31, 2010

Continues to be impacted by muted economic growth



LOOKING FORWARD

M&A activity will be very strong in Q4 2011 and all of 2012, as

sellers seek to lock in current tax rates [subject to overall economy]

For many sellers, 2012 will be a better time as their businesses will

distance themselves from 2008/2009 results



• LOOKING FORWARD (Cont’d)

With the cost of capital at record lows, strategic buyers with strong,

liquid balance sheets will continue to pursue synergistic targets

Acquisitions will increasingly be viewed as a reliable way to capture

market share and reduce expenses in this slow growth environment

Both private equity sponsors and strategic buyers will keep valuations

for quality companies at elevated levels, as IRR expectations decline and

debt markets continue to improve



• EQUITY USED IN LEVERAGED BUYOUTS



• STRATEGIC ACQUIRORS HAVE BEEN ACTIVELY PURSING TRANSACTIONS WITH SOUND STRATEGIC RATIONALES.

– The higher cost of capital and more difficult financing environment for leveraged buyouts should translate into greater opportunity for strategic acquirors to prevail in M&A processes.

U.S. MIDDLE MARKET TRANSACTION COMPOSITION – STRATEGIC VS. SPONSOR DEAL VALUE



• SUMMARY OF THE M&A MARKET

INCREASED ACTIVITY

STRATEGIC BUYERS

INTERNATIONAL BUYERS

PEGS

TROUBLED DEALS

SELLER PARTICIPATION

ESOPS



• AREAS OF FOCUS

STRONG COMPANIES

HEALTHCARE

AEROSPACE AND DEFENSE

TECHNOLOGY

E-COMMERCE



• PUBLIC MARKETS IMPACT M&A MARKET

151

250

315

117 110 127

257

345

457

555

118

177

478

225

$119

$133

$170

$86$50 $48

$109

$149

$221

$265

$81

$106

$235

$96

$0

$60

$120

$180

$240

$300

0

120

240

360

480

600

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD

Pro

ceeds ($

in b

illions)

# o

f D

eals

Number of IPOs Proceeds

Source: Renaissance Capital.com. YTD as of July.Note: Reflects deals with gross proceeds of over $100 million.

INITIAL PUBLIC OFFERINGS AND PROCEEDS



WHAT SHOULD YOU DO?

M&ALARRY BRAUN, SHEPPARD MULLIN

• PREPARE, PREPARE, PREPARE

Consider acquisitions of product lines, technology or businesses that

strengthen your business

“Diligence Yourself”

Be honest

Credibility is key

Common issues

IP ownership

Employee issues

Audit issues

Motivate Management

Consider a myriad of tax deferral techniques

Confidentiality


GALE MOORE, SINGERLEWAK

FINANCIAL AUDIT

FINANCIAL ACCOUNTING AND REPORTING UPDATE

EFFECTIVE IN 2011

STILL HOT IN 2011

PROMISED IN 2011


FINANCIAL AUDIT

EFFECTIVE IN 2011

GOODWILL IMPAIRMENT TEST

Guidance Related to Step 2 Analysis

Public Years Beginning After 12/15/10

Private Years Beginning After 12/15/11


FINANCIAL AUDIT

EFFECTIVE IN 2011

PUBLIC COMPANY BUSINESS COMBINATIONS

Supplementary Pro Forma Information


FINANCIAL AUDIT

EFFECTIVE IN 2011

FAIR VALUE MEASUREMENTS

Clarification on Level 3 Disclosures


FINANCIAL AUDIT

EFFECTIVE IN 2011

CERTAIN REVENUE ARRANGEMENTS THAT INCLUDE SOFTWARE ELEMENTS

MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS


FINANCIAL AUDIT

STILL HOT IN 2011

REVENUE RECOGNITION

Multiple Element Arrangements (VSOE, TPE, ESP)

Disclosure Related to Judgments

Compliance with ASU 2009-13


FINANCIAL AUDIT

STILL HOT IN 2011

GOODWILL IMPAIRMENT

Disclosures (key assumptions)

Skepticism Directed at Impairment Analysis

MD & A Discussion


FINANCIAL AUDIT

STILL HOT IN 2011

FAIR VALUE MEASUREMENTS

Method and Assumptions Questioned

Disclosures


FINANCIAL AUDIT

STILL HOT IN 2011

CONTINGENCY DISCLOSURES

Discussion Not Robust (reasonably possible range)

Same Disclosure for Multiple Years

Settlement in Same Period of Initial Disclosure


FINANCIAL AUDIT

STILL HOT IN 2011

BUSINESS COMBINATIONS

Contingencies

Minority Interest

Acquired Business Audited Financial Statements

Pro-Forma Disclosures


FINANCIAL AUDIT

PROMISED IN 2011

JOINT PROJECTS

Financial Instruments

Balance Sheet Offsetting

Revenue Recognition


FINANCIAL AUDIT

PROMISED IN 2011

Leases

Fair Value Measurement

Statement of Comprehensive Income


FINANCIAL AUDIT

PROMISED IN 2011

IASB – Insurance contracts

FASB Consolidation

IASB Consolidation


FINANCIAL AUDIT

PROMISED IN 2011

Consolidation – Investment companies

Investment Properties

IASB – Postemployment benefits


FINANCIAL AUDIT

PROMISED IN 2011

Discontinued Operations

***Loss Contingencies


FINANCIAL AUDIT

KATHY GRIGGS, J2 GLOBAL

COMMUNICATIONS

ABOUT J2 GLOBAL

Founded in 1995, j2 Global™ Communications provides outsourced,

value-added messaging and communications services to individuals

and businesses around the world.

Offices in eight cities worldwide, j2 Global™ network spans more

than 4,300 cities in 49 countries on six continents.

j2 Global™ markets its services principally under the brands, eFax®,

MyFax®, eFax Corporate™, FuseMail®, Onebox®, eVoice®,

Campaigner®, Electric Mail®, and KeepItSafe®.

As of December 2010, j2 Global™ had achieved

15 consecutive fiscal years of revenue growth.


COMMUNICATIONS

THE HORIZON


COMMUNICATIONS

THE HORIZON

ACCOUNTING & TAX CHANGES

• LEASES• Leases recognized on the balance sheet• No grandfathering – will apply to all outstanding leases• Record all promised payments as a liability with an offsetting right to use asset

• IMPLICATIONS• Buy versus Lease of an asset• Impact on financial ratios and related debt covenants• Educating users of financial statements

• TREATMENT• Right of use asset = PV of lease payments plus initial direct costs incurred then

amortized• Obligation to pay rent liability = PV of lease payments and subsequent front end

loading of expense

ACCOUNTING & TAX CHANGES

• SALES TAXES - NEXUS• Physical location in a state• Employees in a state• Property in the state• Solicit business in the state

• EFFORTS TO EXTEND SALES TAX TO INTERNET BASED BUSINESSES• No physical presence required

• CONSEQUENCES• Subscribers in every state but limited presence in a few states• States broaden the definition of nexus to encompass other criteria –

significant burden will be placed on the business and ultimately passed to the subscriber

THE HORIZON


COMMUNICATIONS

J2 AND M&A

• 32 TRANSACTIONS

• OBTAIN CUSTOMERS AND CROSS-SELL OTHER PRODUCTS

• ACCRETIVE

• INTEGRATION

• CORE

THE HORIZON


COMMUNICATIONS

J2 GLOBAL’S CORE STRATEGY

CLOUD SERVICES FOR BUSINESS

OUR OWN BRANDS

RECURRING REVENUE

EFFICIENT OPERATIONS

THE HORIZON


COMMUNICATIONS

All brand names and logos are trademarks of j2 Global Communications, Inc. or its affiliates in the U.S. and/or internationally.

www.SheppardMullin.com858.720.7469

www.brileyco.com310.966.1444

www.SingerLewak.com877.754.4557

CONTACT US

www.j2global.com323.860.9200

Economy & Finance

CFO Essentials Workshop - Los Angeles