Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements

Fair Value Measurements

5.  Fair Value Measurements

j2 Global complies with the provisions of ASC 820, which defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

§ Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

§ Level 2 – Include other inputs that are directly or indirectly observable in the marketplace.

§ Level 3 – Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company measures its cash equivalents and investments at fair value. j2 Global's cash equivalents, short-term investments and other debt securities are primarily classified within Level 1. Investments in auction rate securities are classified within Level 3. The valuation technique used under Level 3 consists of a discounted cash flow analysis which includes numerous assumptions, including prevailing implied credit risk premiums, incremental credit spreads and illiquidity risk premiums, among others, and a market comparables model where the security is valued based upon indicators from the secondary market of what discounts buyers demand when purchasing similar auction rate securities. There was no change in the technique during the period. Cash equivalents and marketable securities are valued primarily using quoted market prices utilizing market observable inputs. The Company's investments in auction rate securities are classified within Level 3 because there are no active markets for the auction rate securities and, therefore, the Company is unable to obtain independent valuations from market sources. Some of the inputs to the cash flow model are unobservable in the market.

The following tables present the fair values of the Company's financial instruments that are measured at fair value on a recurring basis (in thousands):

September 30, 2011	Level 1		Level 2		Level 3		Fair Value
Cash	$	134,190	$	—	$	—	$	134,190
Equity securities		2		—		—		2
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies		5,563		—		—		5,563
Debt securities issued by states of the United States and political subdivisions of the states		14,027		—		—		14,027
Debt securities issued by foreign governments		3,552		—		—		3,552
Corporate debt securities		27,898		—		—		27,898
Auction rate securities		—		—		598		598
Total	$	185,232	$	—	$	598	$	185,830
December 31, 2010	Level 1		Level 2		Level 3		Fair Value
Cash	$	64,752	$	—	$	—	$	64,752
Equity securities		6		—		—		6
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies		6,603		—		—		6,603
Debt securities issued by foreign governments		2,865		—		—		2,865
Corporate debt securities		12,240		—		—		12,240
Auction rate securities		—		—		496		496
Total	$	86,466	$	—	$	496	$	86,962

The following table provides a summary of changes in fair value of the Company's Level 3 financial assets as of September 30, 2011 (in thousands):

	Level 3 Financial Assets
	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011
Beginning Balance	$	538	$	496
Total gains (losses) - realized/unrealized
Included in earnings		—		—
Not included in earnings		60		102
Purchases, issuances and settlements		—		—
Transfers in and/or out of Level 3		—		—
Balance, September 30, 2011	$	598	$	598
Total losses for the period included in earnings relating to assets still held at September 30, 2011	$	—	$	—

Losses associated with other-than-temporary impairments are recorded as a component of other income. Gains and losses not associated with other-than-temporary impairments are recorded as a component of other comprehensive income.