FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of September 30, 2014 are classified in the tables below in the categories described below (in thousands):



	Level 1		Level 2		Total
ASSETS:
Cash equivalents:
Money market funds	$	69,430	$	—	$	69,430
Foreign government securities	—		838,090		838,090
U.S. government securities	—		2,135,978		2,135,978
U.S. commercial paper	—		731,788		731,788
U.S. government agency securities	—		262,467		262,467
Short-term investments:
Foreign government securities	—		189,515		189,515
U.S. government securities	—		650,513		650,513
U.S. commercial paper	—		182,630		182,630
U.S. government agency securities	—		170,695		170,695
Foreign exchange derivatives	—		423		423
Long-term investments:
U.S. government securities	—		231,991		231,991
U.S. corporate debt securities	—		1,043,777		1,043,777
U.S. government agency securities	—		70,246		70,246
Ctrip corporate debt securities	—		479,500		479,500
Ctrip equity securities	139,668		—		139,668
Total assets at fair value	$	209,098	$	6,987,613	$	7,196,711



	Level 1		Level 2		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	1,044	$	1,044

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		Total
ASSETS:
Cash equivalents:
Money market funds	$	273,850	$	—	$	273,850
Foreign government securities	—		238,202		238,202
U.S. government securities	—		28,000		28,000
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	$	273,850	$	5,729,214	$	6,003,064



	Level 1		Level 2		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 sovereign debt, government agency securities, corporate debt securities and commercial paper 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 September 30, 2014 and December 31, 2013, the Company's cash consisted of bank deposits and cash held in investment accounts. 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 outstanding Senior 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 (loss)."

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 September 30, 2014 and December 31, 2013, there were no outstanding derivative contracts associated with foreign currency translation risk. Foreign exchange gains of $8.3 million and $12.5 million for the three and nine months ended September 30, 2014, respectively, compared to foreign exchange losses of $1.1 million and foreign exchange gains of $1.0 million for the three and nine months ended September 30, 2013, respectively, are 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 September 30, 2014 associated with hedging these risks resulted in a net liability of $0.6 million, with $1.0 million recorded in "Accrued expenses and other current liabilities" and $0.4 million recorded in "Prepaid expenses and other current assets" 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 losses of $15.0 million and $19.0 million for the three and nine months ended September 30, 2014, respectively, compared to foreign exchange gains of $1.5 million and $1.9 million for the three and nine months ended September 30, 2013, respectively, are 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 outflow of $10.0 million for the nine months ended September 30, 2014 compared to a net cash inflow of $3.6 million for the nine months ended September 30, 2013, and are reported within "Net cash provided by operating activities" on the Unaudited Consolidated Statements of Cash Flows.

Derivatives Designated as Hedging Instruments — The Company had no foreign currency forward contracts designated as hedges of its net investment in a foreign subsidiary outstanding as of September 30, 2014. As of December 31, 2013, the Company had outstanding foreign currency forward contracts with a notional value of 3.0 billion Euros to hedge a portion of its net investment in a foreign subsidiary. These contracts were 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 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 $80.3 million and $52.8 million for the nine months ended September 30, 2014 and 2013, respectively, are reported within "Net cash provided by (used in) investing activities" on the Unaudited Consolidated Statements of Cash Flows.