FAIR VALUE MEASUREMENTS

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



	Level 1		Level 2		Total
ASSETS:
Cash equivalents:
Money market funds	$	1,249,091	$	—	$	1,249,091
International government securities	—		35,052		35,052
U.S. government securities	—		159,956		159,956
Corporate debt securities	—		10,243		10,243
Time deposits	4,724		—		4,724
Short-term investments:
International government securities	—		518,465		518,465
U.S. government securities	—		580,220		580,220
Corporate debt securities	—		1,831,495		1,831,495
Commercial paper	—		5,978		5,978
Long-term investments:
International government securities	—		451,551		451,551
U.S. government securities	—		822,319		822,319
Corporate debt securities	—		6,360,199		6,360,199
U.S. government agency securities	—		4,946		4,946
Ctrip convertible debt securities	—		1,438,375		1,438,375
Ctrip equity securities	1,063,240		—		1,063,240
Derivatives:
Currency exchange derivatives	—		558		558
Total assets at fair value	$	2,317,055	$	12,219,357	$	14,536,412



	Level 1		Level 2		Total
LIABILITIES:
Currency exchange derivatives	$	—	$	593	$	593

Financial assets and liabilities carried at fair value as of December 31, 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	$	977,468	$	—	$	977,468
International government securities	—		30,266		30,266
U.S. government securities	—		176,140		176,140
Corporate debt securities	—		9,273		9,273
Commercial paper	—		1,998		1,998
Time deposits	49,160		—		49,160
Short-term investments:
International government securities	—		249,684		249,684
U.S. government securities	—		456,888		456,888
Corporate debt securities	—		1,510,310		1,510,310
Commercial paper	—		1,998		1,998
Long-term investments:
International government securities	—		659,344		659,344
U.S. government securities	—		766,592		766,592
Corporate debt securities	—		6,001,789		6,001,789
U.S. government agency securities	—		4,952		4,952
Ctrip convertible debt securities	—		1,293,088		1,293,088
Ctrip equity securities	865,302		—		865,302
Derivatives:
Currency exchange derivatives	—		756		756
Total assets at fair value	$	1,891,930	$	11,163,078	$	13,055,008



	Level 1		Level 2		Total
LIABILITIES:
Currency exchange derivatives	$	—	$	1,015	$	1,015

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 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, 2017 and December 31, 2016, 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. At both March 31, 2017 and December 31, 2016, the Company held investments in equity securities of private companies of $7.6 million 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, Note 7 for the estimated fair value of the Company's outstanding Senior Notes and 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 (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 risk from short-term foreign exchange rate fluctuations for the Euro, British Pound Sterling and certain other currencies versus the U.S. Dollar. As of March 31, 2017 and December 31, 2016, there were no outstanding derivative contracts related to foreign currency translation risk. Foreign exchange losses of $1.1 million and $3.6 million for the three months ended March 31, 2017 and 2016, 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 March 31, 2017 associated with foreign currency transaction risks resulted in a net liability of $0.1 million, with a liability in the amount of $0.6 million recorded in "Accrued expenses and other current liabilities" and an asset in the amount of $0.5 million recorded in "Prepaid expenses and other current assets" in the Unaudited Consolidated Balance Sheet. Foreign exchange derivatives outstanding as of December 31, 2016 associated with foreign exchange transactions resulted in a net liability of $0.3 million, with a liability in the amount of $1.0 million recorded in "Accrued expenses and other current liabilities" and an asset in the amount of $0.7 million recorded in "Prepaid expenses and other current assets" in the Unaudited Consolidated Balance Sheet. Derivatives associated with these transaction risks resulted in foreign exchange gains of $6.8 million and $12.4 million for the three months ended March 31, 2017 and 2016, 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 $5.9 million and $4.4 million for the three months ended March 31, 2017 and 2016, 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 net cash inflows of $2.7 million and $22.3 million for the three months ended March 31, 2017 and 2016, 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 4). The Company determined that the conversion option for this note met the definition of an embedded derivative. At March 31, 2017 and December 31, 2016, the embedded derivative had an estimated fair value of $3.2 million and $1.8 million, respectively, and is reported in the balance sheet with its host contract in long-term investments. The embedded derivative is bifurcated for measurement purposes only and the mark-to-market for the three months ended March 31, 2017 was a $1.4 million gain, which is included in "Foreign currency transactions and other" in the Company's Unaudited Consolidated Statement of Operations.