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(6)听听Assets 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. Level听1 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. Level听2 inputs are inputs, other than quoted market prices included within Level听1, that are observable for the asset or liability, either directly or indirectly. Level听3 inputs are unobservable inputs for the asset or liability. The Company does not have any recurring assets or liabilities measured at fair value that would be considered Level听3.
Liberty鈥檚 assets and liabilities measured at fair value are as follows:
鈥
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鈥 |
鈥 |
顿别肠别尘产别谤听31,听2020 |
鈥 |
顿别肠别尘产别谤听31,听2019 |
听 |
鈥 |
听听听听 |
鈥 |
鈥 |
听听听听 |
Quoted听prices |
听听听听 |
Significant听other |
听听听听 |
鈥 |
听听听听 |
Quoted听prices |
听听听听 |
Significant听other |
听 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
in听active听markets |
鈥 |
observable |
鈥 |
鈥 |
鈥 |
in听active听markets |
鈥 |
observable |
听 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
for听identical听assets |
鈥 |
inputs |
鈥 |
鈥 |
鈥 |
for听identical听assets |
鈥 |
inputs |
听 |
Description |
鈥 |
Total |
鈥 |
(Level听1) |
鈥 |
(Level听2) |
鈥 |
Total |
鈥 |
(Level听1) |
鈥 |
(Level听2) |
听 |
|
鈥 |
鈥 |
amounts听in听millions |
听 |
Cash equivalents |
听听听听 |
$ |
2,586 |
听听听听 |
2,586 |
听听听听 |
鈥 |
听听听听 |
992 |
听听听听 |
992 |
听听听听 |
鈥 |
听听 |
Debt and equity securities |
鈥 |
$ |
266 |
听听听听 |
181 |
听听听听 |
85 |
听 |
353 |
听听听听 |
242 |
听听听听 |
111 |
鈥 |
Financial instrument assets |
鈥 |
$ |
424 |
听听听听 |
84 |
听听听听 |
340 |
听 |
532 |
听听听听 |
63 |
听听听听 |
469 |
鈥 |
Debt |
鈥 |
$ |
4,545 |
听听听听 |
鈥 |
听听听听 |
4,545 |
听 |
3,678 |
听听听听 |
鈥 |
听听听听 |
3,678 |
鈥 |
Financial instrument liabilities |
鈥 |
$ |
106 |
听听听听 |
鈥 |
听听听听 |
106 |
听 |
53 |
听听听听 |
鈥 |
听听听听 |
53 |
鈥 |
鈥
The majority of Liberty鈥檚 Level听2 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 鈥渁ctive markets,鈥 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. The fair value of debt related instruments are based on quoted market prices but not considered to be traded on 鈥渁ctive markets,鈥 as defined by GAAP. Accordingly, those debt and equity securities, financial instruments and debt or debt related instruments are reported in the foregoing
table as Level听2 fair value. Debt and equity securities and financial instrument assets included in the table above are included in the Other assets line item in the consolidated balance sheets.
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following (amounts in millions):
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
Years听ended听December听31, |
听 |
鈥 |
听听听听 |
2020 |
听听听听 |
2019 |
听听听听 |
2018 |
听 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
鈥 |
听 |
Debt and equity securities |
鈥 |
$ |
(74) |
听 |
110 |
听 |
2 |
鈥 |
Debt measured at fair value (a) |
鈥 |
听 |
(114) |
听 |
(584) |
听 |
130 |
鈥 |
Change in fair value of bond hedges (b) |
鈥 |
鈥 |
(127) |
鈥 |
215 |
鈥 |
(94) |
鈥 |
Other derivatives |
鈥 |
听 |
(87) |
听 |
(56) |
听 |
2 |
鈥 |
鈥 |
鈥 |
$ |
(402) |
听 |
(315) |
听 |
40 |
鈥 |
| (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 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 gain of $148 million, loss of $16 million and gain of $41 million for the years ended December 31, 2020, 2019 and 2018, respectively, and the cumulative change was a gain of $175 million as of December 31, 2020.
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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听A Liberty SiriusXM, Liberty Braves and Liberty Formula One securities and other observable market data as the significant inputs (Level听2). See note听9 for additional discussion of the convertible notes and the bond hedges.
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