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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

5. FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value as of June 30, 2011 are classified in the table below in the categories described below (in thousands):

	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
U.S. government securities	$	—	$	586,836	$	—	$	586,836
Foreign government securities	—		664,988		—		664,988
U.S. agency securities	—		45,587		—		45,587
U.S. corporate notes	—		40,758		—		40,758
Foreign exchange derivatives	—		463		—		463
Total assets at fair value	$	—	$	1,338,632	$	—	$	1,338,632

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	16,468	$	—	$	16,468
Redeemable noncontrolling interests	—		—		67,496		67,496
Total liabilities at fair value	$	—	$	16,468	$	67,496	$	83,964

Financial assets and liabilities carried at fair value as of December 31, 2010 were classified in the table below in the categories described below (in thousands):

	Level 1		Level 2		Level 3		Total
ASSETS:
Short-term investments
U.S. government securities	$	—	$	469,208	$	—	$	469,208
Foreign government securities	—		683,318		—		683,318
U.S. agency securities	—		109,905		—		109,905
U.S. corporate notes	—		40,820		—		40,820
Long-term investments	—		394		—		394
Foreign exchange derivatives	—		4,970		—		4,970
Total assets at fair value	$	—	$	1,308,615	$	—	$	1,308,615

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Foreign exchange derivatives	$	—	$	6,995	$	—	$	6,995
Redeemable noncontrolling interests	—		—		45,751		45,751
Total liabilities at fair value	$	—	$	6,995	$	45,751	$	52,746

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 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.

For the Company’s short-term 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. Investments in U.S. Treasury and foreign government securities are considered “Level 2” fair value measurements as of June 30, 2011 and December 31, 2010 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. Fair values for U.S. agency securities and U.S. corporate notes, which are guaranteed by the federal government, are considered “Level 2” fair value measurements because they are obtained from pricing sources for these or comparable instruments.

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.

As of June 30, 2011 and December 31, 2010, the Company considers its redeemable noncontrolling interests to represent a “Level 3” fair value measurement that requires a high degree of judgment to determine fair value. The Company estimated such fair value based upon standard valuation techniques using discounted cash flow analysis and industry peer comparable analysis. See Note 11 for further information on redeemable noncontrolling interests.

As of June 30, 2011 and December 31, 2010, the carrying value of the Company’s cash and cash equivalents approximated their fair value and consisted primarily of U.S. Treasury money market funds, foreign government securities and bank deposits. Other financial assets and liabilities, including restricted cash, accounts receivable, 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 convertible debt.

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’s derivative instruments are typically short-term in nature. 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 which 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 translation adjustment of the foreign subsidiary’s net assets 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 financial results of its international operations are translated from local currency into U.S. Dollars upon consolidation. The Company’s derivative contracts principally address foreign exchange fluctuations for the Euro and British Pound Sterling. As of December 31, 2010, these derivatives resulted in a liability of $0.2 million and were recorded in “Accrued expenses and other current liabilities” on the Unaudited Consolidated Balance Sheet. As of June 30, 2011, there were no outstanding derivative contracts. Foreign exchange losses of $0.2 million and $2.0 million for the three and six months ended June 30, 2011, respectively, and foreign exchanges gains of $6.1 million and $8.2 million for the three and six months ended June 30, 2010, respectively, were recorded in “Foreign currency transactions and other” in the Unaudited Consolidated Statements of Operations.

Derivatives associated with foreign currency transaction risks resulted in assets of $0.5 million and $1.0 million as of June 30, 2011, and December 31, 2010, respectively, and are recorded in “Prepaid expenses and other current assets” in the Unaudited Consolidated Balance Sheets. Foreign exchange losses of $0.2 million and $0.1 million for the three and six months ended June 30, 2011, respectively, and foreign exchanges losses of $0.1 million and foreign exchange gains of $0.4 million for the three and six months ended June 30, 2010, respectively, were recorded in “Foreign currency transactions and other” in the Unaudited Consolidated Statements of Operations.

The settlement of derivative contracts resulted in a net cash outflow of $3.4 million and $0.4 million for the six months ended June 30, 2011 and 2010, respectively, and was reported within “Net cash provided by operating activities” on the Unaudited Consolidated Statements of Cash Flows.

Derivatives Designated as Hedging Instruments — As of June 30, 2011 and December 31, 2010, the Company had outstanding foreign currency forward contracts for 405 million Euros and 378 million Euros, respectively, 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 June 30, 2011 was a liability of $16.4 million and is recorded in “Accrued expenses and other current liabilities” in the Unaudited Consolidated Balance Sheet. At December 31, 2010, the net liability of $2.8 million was recorded as a liability of $6.8 million in “Accrued expenses and other current liabilities” and as an asset of $4.0 million in “Prepaid expenses and other current assets” in the Unaudited Consolidated Balance Sheet. A cash outflow of $33.8 million for the six months ended June 30, 2011, compared to net cash received of $28.2 million for the six months ended June 30, 2010, was reported within “Net cash used in investing activities” on the Unaudited Consolidated Statements of Cash Flows.

- Definition

This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods.

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