FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of March 31, 2014 are classified in the tables below in the categories described below (in thousands):



	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
Foreign government securities	$	—	$	3,822,980	$	—	$	3,822,980
U.S. government securities	—		1,599,378		—		1,599,378
Foreign exchange derivatives	—		3,344		—		3,344
Total assets at fair value	$	—	$	5,425,702	$	—	$	5,425,702



	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	78,603	$	—	$	78,603

Financial assets and liabilities carried at fair value as of December 31, 2013 are classified in the tables below in the categories described below (in thousands):



	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
Foreign government securities	$	—	$	4,019,407	$	—	$	4,019,407
U.S. government securities	—		1,443,313		—		1,443,313
Foreign exchange derivatives	—		292		—		292
Total assets at fair value	$	—	$	5,463,012	$	—	$	5,463,012



	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	122,091	$	—	$	122,091

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 foreign government and U.S. Treasury securities are considered "Level 2" valuations 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. For the Company's 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.

As of March 31, 2014 and December 31, 2013, 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, accounts payable, 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 Senior Convertible Notes.

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 on 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 on 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 international subsidiary's net assets and are recognized on the Unaudited Consolidated Balance Sheets in "Accumulated other comprehensive income."

Derivatives Not Designated as Hedging Instruments — The Company is exposed to adverse movements in currency exchange rates as the operating results of its international operations are translated from local currency into U.S. Dollars upon consolidation. The Company's derivative contracts principally address short-term foreign exchange fluctuations for the Euro and British Pound Sterling versus the U.S. Dollar. As of March 31, 2014 and December 31, 2013, there were no outstanding derivative contracts associated with foreign currency translation risk. Foreign exchange losses of $0.3 million for the three months ended March 31, 2014 compared to foreign exchange gains of $0.4 million for the three months ended March 31, 2013 were recorded in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.

The Company also enters into foreign currency forward contracts to hedge its exposure to the impact of movements in currency exchange rates on its transactional balances denominated in currencies other than the functional currency. Foreign exchange derivatives outstanding as of March 31, 2014 associated with hedging these risks resulted in a net asset of $0.2 million, with $0.4 million recorded in "Prepaid expenses and other current assets" and $0.2 million recorded in "Accrued expenses and other current liabilities" on the Unaudited Consolidated Balance Sheet. Foreign exchange derivatives outstanding as of December 31, 2013 associated with hedging these risks resulted in a net liability of $0.5 million, with $0.6 million recorded in "Accrued expenses and other current liabilities" and $0.1 million recorded in "Prepaid expenses and other current assets" on the Unaudited Consolidated Balance Sheet. Foreign exchange gains of $0.6 million for the three months ended March 31, 2014 compared to foreign exchange losses of $3.2 million for the three months ended March 31, 2013 were recorded related to these derivatives in "Foreign currency transactions and other" in the Unaudited Consolidated Statements of Operations.

The settlement of derivative contracts not designated as hedging instruments resulted in a net cash inflow of $0.2 million for the three months ended March 31, 2014 compared to a net cash outflow of $2.8 million for the three months ended March 31, 2013, 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 March 31, 2014 and December 31, 2013, the Company had outstanding foreign currency forward contracts with a notional value of 3.0 billion Euros as of both dates, 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 March 31, 2014 was a net liability of $75.5 million, with $78.4 million recorded in "Accrued expenses and other current liabilities" and $2.9 million recorded in "Prepaid expenses and other current assets" on the Unaudited Consolidated Balance Sheet. The fair value of these derivatives at December 31, 2013 was a net liability of $121.3 million, with $121.5 million recorded in "Accrued expenses and other current liabilities" and $0.2 million recorded in "Prepaid expenses and other current assets" on the Unaudited Consolidated Balance Sheet. Net cash outflows of $43.4 million and $17.5 million for the three months ended March 31, 2014 and 2013, respectively, were reported within "Net cash used in investing activities" on the Unaudited Consolidated Statements of Cash Flows.