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Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities Measured at Fair Value

v3.22.2
Assets and Liabilities Measured at Fair Value
6 Months Ended
Jun. 30, 2022
Assets and Liabilities Measured at Fair Value

(5)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. Level1 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. Level2 inputs are inputs, other than quoted market prices included within Level1, that are observable for the asset or liability, either directly or indirectly. Level3 inputs are unobservable inputs for the asset or liability. Liberty 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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June 30, 2022

December 31, 2021

Quoted

Quoted

prices

prices

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Significant

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Significant

markets

other

markets

other

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observable

ڴǰԳپ

observable

assets

inputs

assets

inputs

Description

Total

(𱹱1)

(𱹱2)

Total

(𱹱1)

(𱹱2)

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Cash equivalents

$

2,276

2,276

2,436

2,436

Investment in trust account

$

576

576

575

575

Debt and equity securities

$

106

106

217

217

Financial instrument assets

$

404

83

321

640

99

541

Debt

$

3,581

3,581

5,222

5,222

Financial instrument liabilities

$

6

6

59

20

39

The majority of Liberty's Level2 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. Accordingly, those debt securities, financial instruments and debt or debt related instruments are reported in the foregoing table as Level2 fair value. Investments in the trust account and debt and equity securities included in the table above are included in the Other assets line item in the condensed consolidated balance sheets. As of June 30, 2022, $1 million and $403 million of financial instrument assets included in the table above are included in the Other current assets and Other assets line items, respectively, in the condensed consolidated balance sheet. As of December 31, 2021, $527 million and $113 million of financial instrument assets included in the table above are included in the Other current assets and Other assets line items, respectively, in the condensed consolidated balance sheet.

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:

Three months ended

Six months ended

June 30,

June 30,

2022

2021

2022

2021

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Debt and equity securities

$

(7)

167

(12)

216

Debt measured at fair value (a)

577

(71)

646

(184)

Change in fair value of bond hedges (b)

(201)

46

(269)

59

Other

11

13

74

15

$

380

155

439

106

(a) The Company elected to account for its exchangeable senior debentures and cash convertible notes (as described in note 8) 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 gain of $52 million and a loss of $8 million for the three months ended June 30, 2022 and 2021, respectively, and a gain of $41 million and a loss of $68 million for the six months ended June 30, 2022 and 2021, respectively, and the cumulative change since issuance was a gain of $109 million as of June 30, 2022, net of the recognition of previously unrecognized gains and losses.
(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.