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Showing posts from November, 2011

Did j2 Global Communications Fumble in Accounting?

Last week, I suggested that j2 Global Communications Inc. (NASDAQ:JCOM) could have misinterpreted certain accounting rules and that it should consider restating its financial reports issued in 2010. My analysis was based on a report issued by independent research firm Gradient Analytics and an examination of accounting rules and company disclosures. This blog post will examine how j2 Global has attempted to downplay certain problems in its financial reporting and provide even more compelling reasons for the company to consider restating its financial reports.

Background

Up to 2010, j2 Global apparently estimated the remaining life under its annual contracts with eFax customers to compute its deferred revenues, revenues, and earnings. In the first quarter 2011 10-Q report j2 Global disclosed that it upgraded its accounting systems and started using the actual useful life under its annual contracts with eFax customers to compute those numbers:

In the first quarter of 2011, the Company m…

Should j2 Global Communications Restate its 2010 Financial Reports?

j2 Global Communications Inc. (NASDAQ:JCOM) may have misinterpreted certain accounting rules and needs to consider restating its financial reports issued in 2010 based on certain new information it obtained from a “systems upgrade” in early 2011 that “permitted an accurate measurement of the remaining useful life” in its annual contacts with eFax customers.

Background

If a customer pays an annual fee in advance, a company reports a deferred revenue liability (unearned fees) because the fee is not yet earned. As time progresses on the annual contract, the company reduces its deferred revenue liability and increases its revenues as those fees are earned. Up to 2010, j2 Global apparently estimated the actual remaining life under those contracts to compute its deferred revenues, revenues, and earnings.

In the first quarter of 2011, j2 Global upgraded its accounting systems and started using the actual useful life under its annual contracts with eFax customers to compute deferred revenues, …

Nature's Sunshine Products, Willbros Group, Cal Dive International, and BSQUARE Violate S.E.C. Rules on Calculating EBITDA

Nature’s Sunshine Products (NASDAQ: NATR), Willbros Group (NYSE: WG), Cal Dive International (NYSE: DVR), and BSQUARE (NASDAQ: BSQR) have recently issued earnings reports which include a calculation of EBITDA (earnings before interest, taxes, depreciation, and amortization) that apparently does not comply with Securities and Exchange Commission interpretations for Regulation G governing such non-GAAP financial measures. In each case, their erroneous EBITDA calculations have enabled them to significantly distort their financial performance by erroneously reporting a positive EBITDA, when they should have reported a negative EBITDA in the latest quarter.

How EBITDA is supposed to be calculated under Regulation G

According to the S.E.C. Compliance & Disclosure Interpretations, EBITDA is defined under Regulation G as net income (not operating income) before net interest, taxes, depreciation, and amortization. See below:

Question 103.01Question: Exchange Act Release No. 47226 describes E…