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(5)ÌýÌýÌýAssets and Liabilities Measured at Fair Value
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. LevelÌý1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. LevelÌý2 inputs are inputs, other than quoted market prices included within LevelÌý1, that are observable for the asset or liability, either directly or indirectly. LevelÌý3 inputs are unobservable inputs for the asset or liability. ÌýLiberty does not have any assets or liabilities required to be measured at fair value considered to be Level 3.
Liberty's assets and liabilities measured at fair value are as follows:
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¹ó²¹¾±°ùÌý³Õ²¹±ô³Ü±ðÌý²Ñ±ð²¹²õ³Ü°ù±ð³¾±ð²Ô³Ù²õÌý²¹³Ù |
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¹ó²¹¾±°ùÌý³Õ²¹±ô³Ü±ðÌý²Ñ±ð²¹²õ³Ü°ù±ð³¾±ð²Ô³Ù²õÌý²¹³Ù |
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September 30, 2021 |
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December 31, 2020 |
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ÌýÌýÌýÌý |
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ÌýÌýÌýÌý |
Quoted |
ÌýÌýÌýÌý |
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ÌýÌýÌýÌý |
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ÌýÌýÌýÌý |
Quoted |
ÌýÌýÌýÌý |
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ÌýÌý |
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prices |
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prices |
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¾±²ÔÌý²¹³¦³Ù¾±±¹±ð |
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Significant |
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¾±²ÔÌý²¹³¦³Ù¾±±¹±ð |
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Significant |
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markets |
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other |
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markets |
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other |
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´Ú´Ç°ùÌý¾±»å±ð²Ô³Ù¾±³¦²¹±ô |
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observable |
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´Ú´Ç°ùÌý¾±»å±ð²Ô³Ù¾±³¦²¹±ô |
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observable |
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assets |
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inputs |
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assets |
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inputs |
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Description |
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Total |
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(³¢±ð±¹±ð±ôÌý1) |
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(³¢±ð±¹±ð±ôÌý2) |
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Total |
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(³¢±ð±¹±ð±ôÌý1) |
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(³¢±ð±¹±ð±ôÌý2) |
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²¹³¾´Ç³Ü²Ô³Ù²õÌý¾±²ÔÌý³¾¾±±ô±ô¾±´Ç²Ô²õ |
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Cash equivalents |
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$ |
2,508 |
Ìý |
2,508 |
Ìý |
— |
Ìý |
2,586 |
ÌýÌýÌýÌý |
2,586 |
ÌýÌýÌýÌý |
— |
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Debt and equity securities |
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$ |
393 |
Ìý |
393 |
Ìý |
— |
Ìý |
266 |
ÌýÌýÌýÌý |
181 |
ÌýÌýÌýÌý |
85 |
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Financial instrument assets |
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$ |
511 |
Ìý |
94 |
Ìý |
417 |
Ìý |
424 |
ÌýÌýÌýÌý |
84 |
ÌýÌýÌýÌý |
340 |
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Debt |
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$ |
4,713 |
Ìý |
— |
Ìý |
4,713 |
Ìý |
4,545 |
ÌýÌýÌýÌý |
— |
ÌýÌýÌýÌý |
4,545 |
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Financial instrument liabilities |
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$ |
79 |
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17 |
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62 |
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106 |
ÌýÌýÌýÌý |
— |
ÌýÌýÌýÌý |
106 |
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The majority of Liberty's LevelÌý2 financial instruments are debt related instruments and derivative instruments. These assets and liabilities are not always traded publicly or not considered to be traded on "active markets," as defined in GAAP. The fair values for such instruments are derived from a typical model using observable market data as the significant inputs or a trading price of a similar asset or liability is utilized. ÌýAccordingly, those debt securities, financial instruments and debt or debt related instruments are reported in the foregoing table as LevelÌý2 fair value. Debt and equity securities and financial instrument assets classified as Level 1 and Level 2 in the table above are included in the Other assets line item in the condensed consolidated balance sheets.
Realized and Unrealized Gains (Losses) on Financial Instruments, net
Realized and unrealized gains (losses) on financial instruments, net are comprised of changes in the fair value of the following:
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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ÌýÌýÌýÌý |
2021 |
ÌýÌýÌýÌý |
2020 |
ÌýÌýÌýÌý |
2021 |
ÌýÌýÌýÌý |
2020 |
Ìý |
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²¹³¾´Ç³Ü²Ô³Ù²õÌý¾±²ÔÌý³¾¾±±ô±ô¾±´Ç²Ô²õ |
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Debt and equity securities |
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$ |
(6) |
Ìý |
4 |
Ìý |
210 |
Ìý |
(109) |
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Debt measured at fair value (a) |
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(57) |
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44 |
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(241) |
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326 |
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Change in fair value of bond hedges (b) |
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18 |
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(32) |
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77 |
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(282) |
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Other derivatives |
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Ìý |
5 |
Ìý |
— |
Ìý |
20 |
Ìý |
(98) |
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$ |
(40) |
Ìý |
16 |
Ìý |
66 |
Ìý |
(163) |
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(a) |
The Company elected to account for its exchangeable senior debentures and cash convertible notes using the fair value option. Changes in the fair value of the exchangeable senior debentures and cash convertible notes recognized in the condensed consolidated statements of operations are primarily due to market factors primarily driven by changes in the fair value of the underlying shares into which the debt is exchangeable. The Company isolates the portion of the unrealized gain (loss) attributable to changes in the instrument specific credit risk and recognizes such amount in other comprehensive earnings (loss). The change in the fair value of the exchangeable senior debentures and cash convertible notes attributable to changes in the instrument specific credit risk was a loss of $46 million and a loss of $193 million for the three months ended September 30, 2021 and 2020, respectively, and a loss of $114 million and a gain of $109 million for the nine months ended September 30, 2021 and 2020, respectively, and the cumulative change since issuance was a gain of $61 million as of September 30, 2021.
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(b) |
Contemporaneously with the issuance of the Convertible Notes, Liberty entered into privately negotiated cash convertible note hedges, which are expected to offset potential cash payments Liberty would be required to make in excess of the principal amount of the Convertible Notes, upon conversion of the notes. The bond hedges are marked to market based on the trading price of underlying Series A Liberty SiriusXM, Liberty Braves and Liberty Formula One securities and other observable market data as the significant inputs (Level 2). See note 8 for additional discussion of the bond hedges. |
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