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(3) 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 are inputs, other than quoted market prices included within Level 1, that 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:
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September 30, 2019 |
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December 31, 2018 |
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Quoted prices |
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Significant |
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Quoted prices |
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Significant |
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in active |
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other |
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in active |
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other |
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markets for |
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observable |
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markets for |
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observable |
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identical assets |
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inputs |
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identical assets |
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inputs |
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Description |
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Total |
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(Level 1) |
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(Level 2) |
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Total |
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(Level 1) |
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(Level 2) |
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(amounts in thousands) |
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Cash equivalents |
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$ |
36,459 |
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36,459 |
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— |
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67,329 |
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67,329 |
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— |
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Derivative instruments (1) |
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$ |
45,897 |
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— |
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45,897 |
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— |
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— |
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— |
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| (1) |
As of September 30, 2019, the Company had an outstanding zero-strike call option on 460,675 shares of Liberty Broadband Series C common stock. The Company paid a premium of $46.3 million in September 2019 for the zero-strike call option. The Company accounted for the zero-strike call option as a financial instrument asset due to its settlement provisions, which is recorded at fair value. |
The fair value of Level 2 derivative instruments were derived from a Black-Scholes model using observable market data as the significant inputs. The inputs used in the model during the period outstanding (exclusive of the applicable trading price of Liberty Broadband Series C common stock and the prices associated with the call options) were as follows:
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Range |
Volatility |
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22.0 |
% |
- |
22.0 |
% |
Interest rate |
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2.1 |
% |
- |
2.1 |
% |
Dividend yield |
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0 |
% |
- |
0 |
% |
Other Financial Instruments
Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, current portion of debt and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value due to the short maturity of these instruments as reported on our condensed consolidated balance sheets. The carrying value of our long-term debt bears interest at a variable rate and therefore is also considered to approximate fair value.
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:
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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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2019 |
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2018 |
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2019 |
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2018 |
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(amounts in thousands) |
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Derivative instruments (1) |
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$ |
(433) |
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5,678 |
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(433) |
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3,659 |
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$ |
(433) |
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5,678 |
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(433) |
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3,659 |
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(1) |
In April 2018, the Company entered into a zero-strike call option on 610,325 shares of Liberty Broadband Series C common stock and prepaid a premium of $47.8 million. Liberty Broadband exercised its option to settle the contract in cash in June 2018 for cash proceeds of $46.5 million, and recognized a realized loss on the options as of June 30, 2018. In June 2018, the Company entered into another zero-strike call option on 632,911 shares of Liberty Broadband Series C common stock. Upon expiration, the zero-strike call option was rolled into a new zero-strike call option on 621,920 shares of Liberty Broadband Series C common stock and the Company prepaid a premium of $48.6 million in August 2018. The Company recognized a realized and unrealized gain upon expiration of the option in August 2018 and recognized an unrealized gain on the outstanding option as of September 30, 2018. In September 2019, the Company entered into a zero-strike call option on 460,675 shares of Liberty Broadband Series C common stock and prepaid a premium of $46.3 million.
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