FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of September 30, 2012 are classified in the table below in the categories described below (in thousands): 

	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
Foreign government securities	$	—	$	1,762,686	$	—	$	1,762,686
U.S. government securities	—		2,006,841		—		2,006,841
Foreign exchange derivatives	—		13,784		—		13,784
Total assets at fair value	$	—	$	3,783,311	$	—	$	3,783,311

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	23,226	$	—	$	23,226
Redeemable noncontrolling interests	—		—		133,221		133,221
Total liabilities at fair value	$	—	$	23,226	$	133,221	$	156,447

Financial assets and liabilities carried at fair value as of December 31, 2011 were classified in the table below in the categories described below (in thousands):

	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
Foreign government securities	$	—	$	1,074,186	$	—	$	1,074,186
U.S. government securities	—		923,322		—		923,322
U.S. agency securities	—		26,951		—		26,951
U.S. corporate notes	—		368		—		368
Foreign exchange derivatives	—		60,455		—		60,455
Total assets at fair value	$	—	$	2,085,282	$	—	$	2,085,282

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	1,107	$	—	$	1,107
Redeemable noncontrolling interests	—		—		127,045		127,045
Total liabilities at fair value	$	—	$	1,107	$	127,045	$	128,152

There are three levels of inputs to measure fair value.  The definition of each input is described below:

Level 1: Quoted prices in active markets that are accessible by the Company at the measurement date for

identical assets and liabilities.

Level 2: Inputs that are observable, either directly or indirectly.  Such prices may be based upon quoted

prices for identical or comparable securities in active markets or inputs not quoted on active

markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

Investments in U.S. Treasury and foreign government securities are considered “Level 2” fair value measurements as of September 30, 2012 and December 31, 2011 because the Company has access to quoted prices, but does not have visibility to the volume and frequency of trading for all of these investments.  Fair values for U.S. agency securities and U.S. corporate notes are considered “Level 2” fair value measurements because they are obtained from pricing sources for these or comparable instruments. For the Company’s short-term investments, a market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace. 

The Company’s derivative instruments are valued using pricing models.  Pricing models take into account the contract terms as well as multiple inputs where applicable, such as interest rate yield curves, option volatility and currency rates. Derivatives are considered "Level 2" fair value measurements. The Company's derivative instruments are typically short-term in nature.

The Company considers its redeemable noncontrolling interests to represent a “Level 3” fair value measurement that requires a high degree of judgment to determine fair value.  The fair value of the redeemable noncontrolling interests was determined by industry peer comparable analysis and a discounted cash flow valuation model. See Note 11 for further information on redeemable noncontrolling interests.

As of September 30, 2012 and December 31, 2011, the carrying value of the Company’s cash and cash equivalents approximated their fair value and consisted primarily of foreign and U.S. government securities and bank deposits.  Other financial assets and liabilities, including restricted cash, accounts receivable, accrued expenses and deferred merchant bookings are carried at cost which approximates their fair value because of the short-term nature of these items.  See Note 4 for information on the carrying value of investments and Note 8 for the estimated fair value of the Company’s convertible debt.

In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations.  The Company limits these risks by following established risk management policies and procedures, including the use of derivatives.  The Company does not use derivatives for trading or speculative purposes.  All derivative instruments are recognized in the Unaudited Consolidated Balance Sheets at fair value.  Gains and losses resulting from changes in the fair value of derivative instruments which are not designated as hedging instruments for accounting purposes are recognized in the Unaudited Consolidated Statements of Operations in the period that the changes occur.  Changes in the fair value of derivatives designated as net investment hedges are recorded as currency translation adjustments to offset a portion of the translation adjustment of the foreign subsidiary’s net assets and are recognized in the Unaudited Consolidated Balance Sheets in “Accumulated other comprehensive loss.”

Derivatives Not Designated as Hedging Instruments — The Company is exposed to adverse movements in currency exchange rates as the financial results of its international operations are translated from local currency into U.S. Dollars upon consolidation.  The Company’s derivative contracts principally address foreign exchange fluctuations for the Euro and British Pound Sterling versus the U.S. Dollar.  As of September 30, 2012 and December 31, 2011, there were no outstanding derivative contracts.  Foreign exchange losses of $5.3 million and foreign exchange gains of $0.5 million for the three and nine months ended September 30, 2012, respectively, and foreign exchange gains of $3.9 million and $1.9 million for the three and nine months ended September 30, 2011, respectively, related to these derivatives were recorded in “Foreign currency transactions and other” on the Unaudited Consolidated Statements of Operations.

Derivatives associated with foreign currency transaction risks as of September 30, 2012 resulted in a net asset of $0.5 million, $1.0 million recorded in "Prepaid expenses and other current assets" and $0.5 million recorded in "Accrued expenses and other current liabilities" on the Unaudited Consolidated Balance Sheet. Derivatives associated with foreign currency transaction risks as of December 31, 2011 resulted in a net liability of $0.8 million, with $1.1 million recorded in "Accrued expenses and other current liabilities" and $0.3 million recorded in "Prepaid expenses and other current assets" on the Unaudited Consolidated Balance Sheet.   Foreign exchange gains of $1.5 million and foreign exchange losses of $1.1 million for the three and nine months ended September 30, 2012, respectively, and foreign exchange losses of $0.9 million and $1.0 million for the three and nine months ended September 30, 2011, respectively, related to these derivatives were recorded in “Foreign currency transactions and other” on the Unaudited Consolidated Statements of Operations.

The settlement of derivative contracts resulted in a net cash inflow of $3.3 million for the nine months ended September 30, 2012 compared to a net cash outflow of $2.8 million for the nine months ended September 30, 2011, and are reported within “Net cash provided by operating activities” on the Unaudited Consolidated Statements of Cash Flows.

Derivatives Designated as Hedging Instruments — As of September 30, 2012 and December 31, 2011, the Company had outstanding foreign currency forward contracts for 1.3 billion Euros and 860 million Euros, respectively, to hedge a portion of its net investment in a foreign subsidiary.  These contracts are all short-term in nature.  Hedge ineffectiveness is assessed and measured based on changes in forward exchange rates.  The fair value of these derivatives at September 30, 2012 was a net liability of $9.9 million, with a $22.7 million liability recorded in "Accrued expenses and other current liabilities" and a $12.8 million asset recorded in "Prepaid expenses and other current assets" on the Unaudited Consolidated Balance Sheet. The fair value of these derivatives at December 31, 2011 was an asset of $60.1 million and was reflected in “Prepaid expenses and other current assets” on the Unaudited Consolidated Balance Sheet.  A net cash inflow of $76.6 million for the nine months ended September 30, 2012 compared to a net cash outflow of $36.8 million for the nine months ended September 30, 2011 were reported within “Net cash used in investing activities” on the Unaudited Consolidated Statements of Cash Flows.