FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value at June 30, 2018 are classified in the categories described in the tables below (in thousands):



	Level 1		Level 2		Total
ASSETS:
Cash and restricted cash equivalents:
Money market funds	$	2,673,212	$	—	$	2,673,212
U.S. government securities	—		9,973		9,973
Corporate debt securities	—		5,268		5,268
Commercial paper	—		28,490		28,490
U.S. government agency securities	—		1,000		1,000
Time deposits	7,983		—		7,983
Short-term investments in marketable securities:
International government securities	—		408,882		408,882
U.S. government securities	—		869,209		869,209
Corporate debt securities	—		2,823,947		2,823,947
U.S. government agency securities	—		4,906		4,906
Commercial paper	—		37,808		37,808
Certificate of deposit	1,001		—		1,001
Long-term investments in marketable securities:
International government securities	—		809,291		809,291
U.S. government securities	—		456,340		456,340
Corporate debt securities	—		5,302,171		5,302,171
Ctrip convertible debt securities	—		1,395,838		1,395,838
Ctrip equity securities	1,030,359		—		1,030,359
Derivatives:
Currency exchange derivatives	—		318		318
Total assets at fair value	$	3,712,555	$	12,153,441	$	15,865,996



	Level 1		Level 2		Total
LIABILITIES:
Currency exchange derivatives	$	—	$	2,036	$	2,036

Financial assets and liabilities carried at fair value at December 31, 2017 are classified in the categories described in the tables below (in thousands):



	Level 1		Level 2		Total
ASSETS:
Cash and restricted cash equivalents:
Money market funds	$	1,895,272	$	—	$	1,895,272
U.S. government securities	—		22,265		22,265
Corporate debt securities	—		6,674		6,674
Commercial paper	—		96,321		96,321
Time deposits	17,896		—		17,896
Short-term investments in marketable securities:
International government securities	—		725,376		725,376
U.S. government securities	—		994,118		994,118
Corporate debt securities	—		3,063,315		3,063,315
U.S. government agency securities	—		4,414		4,414
Commercial paper	—		72,650		72,650
Long-term investments in marketable securities:
International government securities	—		607,910		607,910
U.S. government securities	—		834,276		834,276
Corporate debt securities	—		6,656,424		6,656,424
U.S. government agency securities	—		494		494
Ctrip convertible debt securities	—		1,368,500		1,368,500
Ctrip equity securities	953,996		—		953,996
Derivatives:
Currency exchange derivatives	—		1,767		1,767
Total assets at fair value	$	2,867,164	$	14,454,504	$	17,321,668



	Level 1		Level 2		Total
LIABILITIES:
Currency exchange derivatives	$	—	$	127	$	127

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 corporate debt securities, U.S. and international government securities, commercial paper, government agency securities and convertible debt securities are considered "Level 2" valuations because the Company has access to quoted prices, but does not have visibility into 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.

At June 30, 2018 and December 31, 2017, the Company's cash consisted of bank deposits. Other financial assets and liabilities, including restricted cash and cash equivalents, 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. At June 30, 2018 and December 31, 2017, the Company held investments in equity securities of private companies of $450.9 million and these investments are accounted for under the cost method of accounting (see Note 5). See Note 5 for information on the carrying value of the Company's investments in marketable securities, Note 8 for the estimated fair value of the Company's outstanding Senior Notes and Note 12 for the Company's contingent liabilities associated with business acquisitions.

In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations. The Company mitigates 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 that 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 were recorded as foreign currency translation adjustments to offset a portion of the foreign currency translation adjustment from Euro-denominated net assets held by certain subsidiaries and were recognized in 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 enters into average-rate derivative contracts to hedge translation risks from short-term currency exchange rate fluctuations for the Euro, British Pound Sterling and certain other currencies versus the U.S. Dollar. At June 30, 2018 and December 31, 2017, there were no outstanding derivative contracts related to foreign currency translation risks.

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. Derivative assets are included in "Prepaid expenses and other current assets" and derivative liabilities are included in "Accrued expenses and other current liabilities" in the Unaudited Consolidated Balance Sheets. Derivatives associated with these transaction risks resulted in foreign currency losses of $50.2 million and $29.6 million for the three and six months ended June 30, 2018, respectively, compared to foreign currency gains of $20.8 million and $27.6 million for the three and six months ended June 30, 2017, respectively. These mark-to-market adjustments on the derivative contracts, offset by the effect of changes in currency exchange rates on transactions denominated in currencies other than the functional currency, resulted in net losses of $11.8 million and $17.2 million for the three and six months ended June 30, 2018, respectively, and net losses of $5.1 million and $11.0 million for the three and six months ended June 30, 2017, respectively. The net impacts related to these derivatives are reported 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 net cash outflows of $30.2 million and net cash inflows of $23.1 million for the six months ended June 30, 2018 and 2017, respectively, and are reported within "Net cash provided by operating activities" in the Unaudited Consolidated Statements of Cash Flows.

Embedded Derivative — In September 2016, the Company invested $25 million in a Ctrip convertible note (see Note 5). The Company determined that the conversion option for this note met the definition of an embedded derivative. At June 30, 2018 and December 31, 2017, the embedded derivative had an estimated fair value of $1.7 million and $1.8 million, respectively, and is reported in the Unaudited Consolidated Balance Sheets with its host contract in "Long-term investments." The embedded derivative is bifurcated for measurement purposes only. The mark-to-market adjustments are included in "Foreign currency transactions and other" in the Company's Unaudited Consolidated Statements of Operations.