Condensed Consolidating Financials | Consolidating Financial Statements In connection with the June 2014 Convertible Note issuance, j2 Global, Inc. entered into a supplemental indenture related to the Senior Notes, pursuant to which it fully and unconditionally guaranteed, on an unsecured basis, the full and punctual payment of the Senior Notes issued by its wholly owned subsidiary, j2 Cloud Services. j2 Cloud Services 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 net cash proceeds from the issuance of the Convertible Notes) are owned directly or indirectly by j2 Cloud Services, those contractual provisions did not, as of June 30, 2014, meaningfully restrict the ability of j2 Cloud Services 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, LLC, (iii) the non-guarantor subsidiaries on a combined basis, (iv) the eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis, and (v) the Company on a consolidated basis. The condensed consolidating financial statements are presented in accordance with the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. Intercompany charges (income) between the Parent and subsidiaries are recognized in the condensed consolidating financial statements during the period incurred and the settlement of intercompany balances is reflected in the condensed consolidating statement of cash flows based on the nature of the underlying transactions. Consolidating adjustments include consolidating and eliminating entries for investments in subsidiaries, intercompany activity and balances. j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET December 31, 2016 (In thousands except share and per share data) BALANCE SHEET j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated ASSETS Cash and cash equivalents $ 23,935 $ 22,949 $ 77,066 $ — $ 123,950 Short-term investments — — 60 — 60 Accounts receivable, net — 11,464 188,498 (91 ) 199,871 Prepaid expenses and other current assets 25,922 2,266 21,246 (25,316 ) 24,118 Intercompany receivable 635,740 281,078 166,210 (1,083,028 ) — Total current assets 685,597 317,757 453,080 (1,108,435 ) 347,999 Property and equipment, net — 6,318 61,776 — 68,094 Trade names, net — 10,097 105,756 — 115,853 Patent and patent licenses, net — 601 13,327 — 13,928 Customer relationships, net — 2,519 205,636 — 208,155 Goodwill — 58,310 1,064,500 — 1,122,810 Other purchased intangibles, net — 4,804 168,951 — 173,755 Investment in subsidiaries 1,091,412 730,153 (1,071 ) (1,820,494 ) — Deferred income taxes, non-current 1,346 26,667 2,171 (24,895 ) 5,289 Other assets — 443 6,002 — 6,445 Total assets $ 1,778,355 $ 1,157,669 $ 2,080,128 $ (2,953,824 ) $ 2,062,328 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accrued expenses $ 4,545 $ 28,179 $ 170,754 $ (25,407 ) $ 178,071 Income taxes payable — 82,795 — (66,042 ) 16,753 Deferred revenue, current — 19,277 61,107 — 80,384 Line of Credit 178,817 — — — 178,817 Capital lease, current — — 64 — 64 Intercompany payable 296,658 11 720,317 (1,016,986 ) — Total current liabilities 480,020 130,262 952,242 (1,108,435 ) 454,089 Long-term debt 355,143 246,604 (1 ) — 601,746 Deferred revenue, non-current — 1,588 — — 1,588 Liability for uncertain tax positions — 41,259 5,278 — 46,537 Deferred income taxes, non-current 28,687 — 36,565 (24,895 ) 40,357 Other long-term liabilities 1,040 505 1,930 — 3,475 Total liabilities 864,890 420,218 996,014 (1,133,330 ) 1,147,792 Commitments and contingencies — — — — — Preferred stock - Series A, $0.01 par value — — — — — Preferred stock - Series B, $0.01 par value — — — — — Common stock, $0.01 par value 474 — — — 474 Additional paid-in capital 464,220 89,066 424,399 (669,356 ) 308,329 Retained earnings 448,771 648,233 714,516 (1,151,138 ) 660,382 Accumulated other comprehensive income (loss) — 152 (54,801 ) — (54,649 ) Total stockholders' equity 913,465 737,451 1,084,114 (1,820,494 ) 914,536 Total liabilities and stockholders' equity $ 1,778,355 $ 1,157,669 $ 2,080,128 $ (2,953,824 ) $ 2,062,328 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET December 31, 2015 (In thousands except share and per share data) BALANCE SHEET j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated ASSETS Cash and cash equivalents $ 55,516 $ 9,975 $ 190,039 $ — $ 255,530 Short-term investments 79,595 — 60 — 79,655 Accounts receivable, net — 10,679 104,131 (130 ) 114,680 Prepaid expenses and other current assets 6,887 8,500 14,319 (3,984 ) 25,722 Deferred income taxes, current — 3,316 4,413 (511 ) 7,218 Intercompany receivable 117,000 174,127 — (291,127 ) — Total current assets 258,998 206,597 312,962 (295,752 ) 482,805 Long-term investments 78,563 — — — 78,563 Property and equipment, net — 6,557 50,885 — 57,442 Trade names, net — 10,118 108,847 — 118,965 Patent and patent licenses, net — 743 18,098 — 18,841 Customer relationships, net — 1,193 196,126 — 197,319 Goodwill — 56,296 751,365 — 807,661 Other purchased intangibles, net — 4,218 13,298 — 17,516 Investment in subsidiaries 1,051,927 1,095,155 — (2,147,082 ) — Deferred income taxes, non-current — 14,978 (14,978 ) — — Other assets 8,219 1,167 4,370 (9,149 ) 4,607 Total assets $ 1,397,707 $ 1,397,022 $ 1,440,973 $ (2,451,983 ) $ 1,783,719 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accrued expenses $ 4,573 $ 27,976 $ 81,965 $ (130 ) $ 114,384 Income taxes payable — 9,573 — (3,984 ) 5,589 Deferred revenue, current — 19,530 56,574 — 76,104 Capital lease, current — — 214 — 214 Deferred income taxes, current 511 — 363 (511 ) 363 Intercompany payable 121,263 — 169,864 (291,127 ) — Total current liabilities 126,347 57,079 308,980 (295,752 ) 196,654 Long-term debt 354,437 246,749 — (9,149 ) 592,037 Deferred revenue, non-current — 4,667 1,871 — 6,538 Capital lease, non-current — — 148 — 148 Liability for uncertain tax positions — 35,917 — — 35,917 Deferred income taxes, non-current 24,936 — 19,053 — 43,989 Other long-term liabilities 1,779 683 15,766 — 18,228 Total liabilities 507,499 345,095 345,818 (304,901 ) 893,511 Commitments and contingencies — — — — — Preferred stock - Series A, $0.01 par value — — — — — Preferred stock - Series B, $0.01 par value — — — — — Common stock, $0.01 par value 479 — — — 479 Additional paid-in capital 292,064 238,631 524,031 (762,662 ) 292,064 Retained earnings 595,216 813,058 602,935 (1,384,420 ) 626,789 Accumulated other comprehensive income (loss) 2,449 238 (31,811 ) — (29,124 ) Total stockholders' equity 890,208 1,051,927 1,095,155 (2,147,082 ) 890,208 Total liabilities and stockholders’ equity $ 1,397,707 $ 1,397,022 $ 1,440,973 $ (2,451,983 ) $ 1,783,719 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2016 (In thousands, except share and per share data) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Revenues: Total revenues $ — $ 246,525 $ 692,974 $ (65,244 ) $ 874,255 Cost of revenues — 71,115 141,082 (65,097 ) 147,100 Gross profit — 175,410 551,892 (147 ) 727,155 Operating expenses: Sales and marketing — 40,583 166,435 (147 ) 206,871 Research, development and engineering — 12,657 25,389 — 38,046 General and administrative 19,014 19,048 201,610 — 239,672 Total operating expenses 19,014 72,288 393,434 (147 ) 484,589 Income (loss) from operations (19,014 ) 103,122 158,458 — 242,566 Equity earnings in Subsidiaries 160,544 97,202 — (257,746 ) — Interest expense, net 4,579 20,655 16,136 — 41,370 Other expense (income), net (7,717 ) (872 ) (1,654 ) — (10,243 ) Income before income taxes 144,668 180,541 143,976 (257,746 ) 211,439 Income tax expense (benefit) (7,771 ) 35,447 31,324 — 59,000 Net income $ 152,439 $ 145,094 $ 112,652 $ (257,746 ) $ 152,439 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2015 (In thousands, except share and per share data) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Revenues: Total revenues $ — $ 232,768 $ 554,560 $ (66,513 ) $ 720,815 Cost of revenues — 77,798 111,476 (66,316 ) 122,958 Gross profit — 154,970 443,084 (197 ) 597,857 Operating expenses: Sales and marketing — 39,240 119,966 (197 ) 159,009 Research, development and engineering — 14,844 19,485 — 34,329 General and administrative 15,849 26,842 162,446 — 205,137 Total operating expenses 15,849 80,926 301,897 (197 ) 398,475 Income (loss) from operations (15,849 ) 74,044 141,187 — 199,382 Equity earnings in Subsidiaries 151,894 116,142 — (268,036 ) — Interest expense, net 12,227 21,276 8,955 — 42,458 Other expense (income), net (271 ) 395 (119 ) — 5 Income before income taxes 124,089 168,515 132,351 (268,036 ) 156,919 Income tax expense (benefit) (9,547 ) 16,621 16,209 — 23,283 Net income $ 133,636 $ 151,894 $ 116,142 $ (268,036 ) $ 133,636 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME Year Ended December 31, 2014 (In thousands, except share and per share data) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Revenues: Total revenues $ — $ 227,860 $ 412,217 $ (41,047 ) $ 599,030 Cost of revenues — 51,391 95,386 (40,788 ) 105,989 Gross profit — 176,469 316,831 (259 ) 493,041 Operating expenses: Sales and marketing — 36,414 105,812 (259 ) 141,967 Research, development and engineering — 14,055 16,625 — 30,680 General and administrative 6,401 30,300 97,487 — 134,188 Total operating expenses 6,401 80,769 219,924 (259 ) 306,835 Income (loss) from operations (6,401 ) 95,700 96,907 — 186,206 Equity earnings in Subsidiaries 135,838 77,051 — (212,889 ) — Interest expense, net 10,442 20,478 284 — 31,204 Other expense (income), net (23 ) 141 (283 ) — (165 ) Income before income taxes 119,018 152,132 96,906 (212,889 ) 155,167 Income tax expense (benefit) (6,309 ) 16,294 19,855 — 29,840 Net income $ 125,327 $ 135,838 $ 77,051 $ (212,889 ) $ 125,327 Less extinguishment of Series A preferred stock (991 ) — — — (991 ) Net income attributable to j2 Global, Inc. common shareholders $ 124,336 $ 135,838 $ 77,051 $ (212,889 ) $ 124,336 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2016 (In thousands) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Net income $ 152,439 $ 145,094 $ 112,652 $ (257,746 ) $ 152,439 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment — — (23,076 ) — (23,076 ) Change in fair value on available-for-sale investments, net of tax benefit (2,449 ) — — — (2,449 ) Other comprehensive loss, net of tax (2,449 ) — (23,076 ) — (25,525 ) Comprehensive income $ 149,990 $ 145,094 $ 89,576 $ (257,746 ) $ 126,914 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2015 (In thousands) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Net income $ 133,636 $ 151,894 $ 116,142 $ (268,036 ) $ 133,636 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment — — (15,058 ) — (15,058 ) Change in fair value on available-for-sale investments, net of tax benefit (6,939 ) — — — (6,939 ) Other comprehensive loss, net of tax (6,939 ) — (15,058 ) — (21,997 ) Comprehensive income $ 126,697 $ 151,894 $ 101,084 $ (268,036 ) $ 111,639 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2014 (In thousands) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Net income $ 125,327 $ 135,838 $ 77,051 $ (212,889 ) $ 125,327 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment — (478 ) (14,216 ) — (14,694 ) Change in fair value on available-for-sale investments, net of tax expense 15 3,307 10 — 3,332 Other comprehensive income (loss), net of tax 15 2,829 (14,206 ) — (11,362 ) Comprehensive income $ 125,342 $ 138,667 $ 62,845 $ (212,889 ) $ 113,965 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2016 (In thousands) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Net cash (used in) provided by operating activities $ (60,383 ) $ 65,429 $ 277,341 $ — $ 282,387 Cash flows from investing activities: Maturity of available-for-sale investments 241,817 — — — 241,817 Purchase of available-for-sale investments (80,918 ) — — — (80,918 ) Purchases of property and equipment — (2,513 ) (22,233 ) — (24,746 ) Acquisition of businesses, net of cash received — (7,609 ) (573,082 ) — (580,691 ) Purchases of intangible assets — (106 ) (4,215 ) — (4,321 ) Intercompany — — — — — Net cash (used in) provided by investing activities 160,899 (10,228 ) (599,530 ) — (448,859 ) Cash flows from financing activities: Proceeds from line of credit, net 178,710 — — — 178,710 Repurchases of common and restricted stock (56,495 ) — (1 ) — (56,496 ) Issuance of common stock under employee stock purchase plan 254 — — — 254 Exercise of stock options 3,570 — — — 3,570 Dividends paid (65,835 ) — — — (65,835 ) Excess tax benefits from share-based compensation 2,271 — — — 2,271 Deferred payments for acquisitions — (1,547 ) (19,285 ) — (20,832 ) Other — — (492 ) — (492 ) Intercompany (194,358 ) (40,596 ) 234,954 — — Net cash (used in) provided by financing activities (131,883 ) (42,143 ) 215,176 — 41,150 Effect of exchange rate changes on cash and cash equivalents (214 ) (84 ) (5,960 ) — (6,258 ) Net change in cash and cash equivalents (31,581 ) 12,974 (112,973 ) — (131,580 ) Cash and cash equivalents at beginning of period 55,516 9,975 190,039 — 255,530 Cash and cash equivalents at end of period $ 23,935 $ 22,949 $ 77,066 $ — $ 123,950 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2015 (In thousands) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Net cash (used in) provided by operating activities $ (29,406 ) $ 70,905 $ 187,562 $ — $ 229,061 Cash flows from investing activities: Maturity of certificates of deposit 65 — — — 65 Purchase of certificates of deposit (62 ) — — — (62 ) Maturity of available-for-sale investments 121,687 — — — 121,687 Purchase of available-for-sale investments (135,832 ) — — — (135,832 ) Purchases of property and equipment — (1,645 ) (15,652 ) — (17,297 ) Acquisition of businesses, net of cash received — — (302,809 ) — (302,809 ) Purchases of intangible assets — 57 (1,512 ) — (1,455 ) Investment in subsidiaries — — — — — Intercompany (53,317 ) 53,317 — — — Net cash (used in) provided by investing activities (67,459 ) 51,729 (319,973 ) — (335,703 ) Cash flows from financing activities: Repurchases of common and restricted stock (3,674 ) — — — (3,674 ) Issuance of common stock under employee stock purchase plan 260 — — — 260 Exercise of stock options 4,958 — — — 4,958 Dividends paid (58,826 ) — — — (58,826 ) Excess tax benefits from share-based compensation 4,486 — — — 4,486 Deferred payments for acquisitions — (2,000 ) (12,271 ) — (14,271 ) Other — — (296 ) — (296 ) Intercompany (29,835 ) (144,516 ) 174,351 — — Net cash (used in) provided by financing activities (82,631 ) (146,516 ) 161,784 — (67,363 ) Effect of exchange rate changes on cash and cash equivalents 8,222 (2,953 ) (9,397 ) — (4,128 ) Net change in cash and cash equivalents (171,274 ) (26,835 ) 19,976 — (178,133 ) Cash and cash equivalents at beginning of period 226,790 36,810 170,063 — 433,663 Cash and cash equivalents at end of period $ 55,516 $ 9,975 $ 190,039 $ — $ 255,530 j2 GLOBAL, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 2014 (In thousands) j2 Global, Inc. j2 Cloud Services Non-guarantor Subsidiaries Consolidating Adjustments j2 Global Consolidated Net cash (used in) provided by operating activities $ (65 ) $ 59,544 $ 117,752 $ — $ 177,231 Cash flows from investing activities: Maturity of certificates of deposit — 8,210 6,310 — 14,520 Purchase of certificates of deposit — — (65 ) — (65 ) Maturity of available-for-sale investments 40,211 53,563 16,589 — 110,363 Purchase of available-for-sale investments (81,061 ) (57,391 ) — — (138,452 ) Purchases of property and equipment — (2,866 ) (8,963 ) — (11,829 ) Proceeds from sale of assets — 608 — — 608 Acquisition of businesses, net of cash received — (2,083 ) (243,195 ) — (245,278 ) Purchases of intangible assets — (2,949 ) (2,387 ) — (5,336 ) Investment in subsidiaries — (23,821 ) — 23,821 — Net cash (used in) provided by investing activities (40,850 ) (26,729 ) (231,711 ) 23,821 (275,469 ) Cash flows from financing activities: Issuance of long-term debt 402,500 — — — 402,500 Debt issuance costs (11,991 ) — — — (11,991 ) Repurchases of common stock and restricted stock (930 ) (4,733 ) — — (5,663 ) Issuance of common stock under employee stock purchase plan 142 123 — — 265 Exercise of stock options 1,374 5,193 54 — 6,621 Dividends paid (26,967 ) (25,302 ) — — (52,269 ) Excess tax benefits from share-based compensation 86 4,803 623 — 5,512 Deferred payments for acquisitions — — (16,512 ) — (16,512 ) Other — — (933 ) — (933 ) Intercompany (96,509 ) (10,495 ) 130,825 (23,821 ) — Net cash (used in) provided by financing activities 267,705 (30,411 ) 114,057 (23,821 ) 327,530 Effect of exchange rate changes on cash and cash equivalents — — (3,430 ) — (3,430 ) Net change in cash and cash equivalents 226,790 2,404 (3,332 ) — 225,862 Cash and cash equivalents at beginning of period — 34,406 173,395 — 207,801 Cash and cash equivalents at end of period $ 226,790 $ 36,810 $ 170,063 $ — $ 433,663 |