Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities Measured at Fair Value

v3.19.3
Assets and Liabilities Measured at Fair Value
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Assets and Liabilities Measured at Fair Value 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 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 2 inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either directly or indirectly. Level 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 3.

The Company’s assets and liabilities measured at fair value are as follows:
 
 
September 30, 2019
 
December 31, 2018
Description
 
Total
 
Quoted prices
in active
markets
for identical
assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Total
 
Quoted prices
in active
markets
for identical
assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
 
amounts in thousands
Cash equivalents
 
$
363,026

 
363,026

 
—

 
384,071

 
384,071

 
—

Equity securities
 
$
2,208,304

 
2,208,304

 
—

 
1,529,901

 
1,529,901

 
—

Investment in Liberty Broadband
 
$
4,467,508

 
4,467,508

 
—

 
3,074,373

 
3,074,373

 
—

Derivative instrument
 
$
78,061

 
—

 
78,061

 
20,340

 
—

 
20,340

Indemnification obligation
 
$
136,833

 
—

 
136,833

 
78,522

 
—

 
78,522

Exchangeable senior debentures
 
$
579,291

 
—

 
579,291

 
462,336

 
—

 
462,336


    
On June 6, 2017, Qurate Retail purchased 450,000 LendingTree shares and executed a 2‑year variable forward with respect to 642,850 LendingTree shares. The variable forward was executed at the LendingTree closing price on June 6, 2017 of $170.70 per share and had a floor price of $128.03 per share and a cap price of $211.67 per share. The fair value of the variable forward was derived from a Black‑Scholes‑Merton model using observable market data as the significant inputs. On April 29, 2019, the Company terminated its variable forward and entered into a new 3-year variable forward with respect to 642,850 LendingTree shares. The variable forward was executed at the LendingTree closing price on April 29, 2019 of $376.35 per share and has a floor price of zero and has a cap price of $254.00 per share. The fair value of the variable forward was derived from a Black-Scholes-Merton model using observable market data as the significant inputs.

Pursuant to an indemnification agreement, GCI Liberty has agreed to indemnify LI LLC for certain payments made to a holder of LI LLC's 1.75% exchangeable debentures due 2046 (the "1.75% Exchangeable Debentures"). An indemnity obligation in the amount of $281.3 million was recorded upon completion of the HoldCo Split-Off. In June 2018, Qurate Retail repurchased 417,759 bonds of the 1.75% Exchangeable Debentures for approximately $457 million, including accrued interest, and the Company made a payment under the indemnification agreement to Qurate Retail in the amount of $133 million. The remaining indemnification liability due to LI LLC pertains to the holder’s ability to exercise its exchange right according to the terms of the 1.75% Exchangeable Debentures on or before October 5, 2023. Such amount will equal the difference between the exchange value and par value of the 1.75% Exchangeable Debentures at the time the exchange occurs. The indemnification obligation recorded in the accompanying condensed consolidated balance sheets as of September 30, 2019 represents the fair value of the estimated exchange feature included in the 1.75% Exchangeable Debentures primarily based on observable market data as significant inputs (Level 2). As of September 30, 2019, a holder of the 1.75% Exchangeable Debentures does not have the ability to exchange and, accordingly, such indemnification obligation is included as a long-term liability in the accompanying condensed consolidated balance sheets. Additionally, as of September 30, 2019, 332,241 bonds of the 1.75% Exchangeable Debentures remain outstanding.

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
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
amounts in thousands
Equity securities
 
$
90,770

 
175,359

 
683,808

 
(53,681
)
Investment in Liberty Broadband
 
19,207

 
366,211

 
1,393,135

 
(36,706
)
Derivative instruments
 
60,640

 
(3,223
)
 
(57,721
)
 
69,329

Indemnification obligation
 
(3,485
)
 
(14,937
)
 
(58,311
)
 
48,671

Exchangeable senior debentures
 
(10,967
)
 
(27,901
)
 
(116,048
)
 
(31,941
)
 
 
$
156,165

 
495,509

 
1,844,863

 
(4,328
)


The Company has elected to account for its exchangeable debt using the fair value option.  Accordingly, a portion of the unrealized gain (loss) recognized on the Company’s exchangeable debt is presented in other comprehensive income as it relates to instrument specific credit risk and any other changes in fair value are presented in the accompanying condensed consolidated statements of operations.