FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of June 30, 2016 are classified in the tables below in the categories described below (in thousands):



	Level 1		Level 2		Total
ASSETS:
Cash equivalents:
Money market funds	$	1,344,815	$	—	$	1,344,815
U.S. government securities	—		222,264		222,264
Commercial paper	—		5,560		5,560
Short-term investments:
Foreign government securities	—		287,112		287,112
U.S. government securities	—		427,535		427,535
Corporate debt securities	—		951,211		951,211
Commercial paper	—		8,007		8,007
U.S. government agency securities	—		3,377		3,377
Foreign exchange derivatives	—		782		782
Long-term investments:
Foreign government securities	—		646,437		646,437
U.S. government securities	—		547,230		547,230
Corporate debt securities	—		4,583,347		4,583,347
U.S. municipal securities	—		1,074		1,074
U.S. government agency securities	—		1,000		1,000
Ctrip convertible debt securities	—		1,306,475		1,306,475
Ctrip equity securities	868,851		—		868,851
Total assets at fair value	$	2,213,666	$	8,991,411	$	11,205,077



	Level 1		Level 2		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	351	$	351

Financial assets and liabilities carried at fair value as of December 31, 2015 are classified in the tables below in the categories described below (in thousands):



	Level 1		Level 2		Total
ASSETS:
Cash equivalents:
Money market funds	$	99,117	$	—	$	99,117
Foreign government securities	—		10,659		10,659
U.S. government securities	—		90,441		90,441
Corporate debt securities	—		1,855		1,855
Commercial paper	—		335,663		335,663
Short-term investments:
Foreign government securities	—		395,797		395,797
U.S. government securities	—		456,494		456,494
Corporate debt securities	—		305,260		305,260
Commercial paper	—		11,688		11,688
U.S. government agency securities	—		2,007		2,007
Foreign exchange derivatives	—		363		363
Long-term investments:
Foreign government securities	—		719,631		719,631
U.S. government securities	—		578,450		578,450
Corporate debt securities	—		4,276,614		4,276,614
U.S. municipal securities	—		1,083		1,083
Ctrip convertible debt securities	—		1,378,550		1,378,550
Ctrip equity securities	977,035		—		977,035
Total assets at fair value	$	1,076,152	$	8,564,555	$	9,640,707



	Level 1		Level 2		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	644	$	644

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 foreign government securities, commercial paper, government agency securities, convertible debt securities and municipal 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 June 30, 2016 and December 31, 2015, the Company's cash consisted of 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. As of June 30, 2016 and December 31, 2015, the Company held investments in equity securities of private companies and these investments are accounted for under the cost method of accounting (see Note 4). See Note 4 for information on the carrying value of available-for-sale investments and Note 7 for the estimated fair value of the Company's outstanding Senior Notes. See Note 11 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 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 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 are recorded as currency translation adjustments to offset a portion of the currency translation adjustment from Euro-denominated net assets held by certain subsidiaries and are recognized in 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 enters into average-rate derivative contracts to hedge translation risk from short-term foreign exchange fluctuations for the Euro, British Pound Sterling and certain other currencies versus the U.S. Dollar. As of June 30, 2016 and December 31, 2015, there were no outstanding derivative contracts related to foreign currency translation risk. Foreign exchange gains of $3.9 million and $0.3 million for the three and six months ended June 30, 2016, respectively, compared to foreign exchange losses of $1.7 million and foreign exchange gains of $0.2 million for the three and six months ended June 30, 2015, respectively, are recorded related to these derivatives 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 June 30, 2016 associated with foreign currency transaction risks resulted in a net asset of $0.4 million, with an asset in the amount of $0.8 million recorded in "Prepaid expenses and other current assets" and a liability in the amount of $0.4 million recorded in "Accrued expenses and other current liabilities" in the Unaudited Consolidated Balance Sheet. Foreign exchange derivatives outstanding as of December 31, 2015 associated with foreign exchange transactions resulted in a net liability of $0.3 million, with a liability in the amount of $0.7 million recorded in "Accrued expenses and other current liabilities" in the Unaudited Consolidated Balance Sheet and an asset in the amount of $0.4 million recorded in "Prepaid expenses and other current assets." Derivatives associated with these transaction risks resulted in foreign exchange gains of $3.6 million and $16.0 million for the three and six months ended June 30, 2016, respectively, compared to foreign exchange gains of $6.0 million and foreign exchange losses of $26.0 million for the three and six months ended June 30, 2015, 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 $2.6 million and $0.2 million for the three months ended June 30, 2016 and 2015, respectively, and net losses of $7.0 million and $6.3 million for the six months ended June 30, 2016 and 2015, respectively. The net impacts related to these derivatives are recorded 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 $23.6 million for the six months ended June 30, 2016 compared to a net cash outflow of $27.7 million for the six months ended June 30, 2015 and are reported within "Net cash provided by operating activities" in 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 June 30, 2016 or December 31, 2015. A net cash inflow of $5.2 million for the six months ended June 30, 2015 related to foreign currency forward contracts designated as hedges of the Company's net investment in a foreign subsidiary is reported within "Net cash used in investing activities" in the Unaudited Consolidated Statement of Cash Flows.