| Assets and Liabilities Measured at Fair Value |
(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. As of June 30, 2017, the Company does not have any recurring assets or liabilities measured at fair value that would be considered Level 2 or Level 3.
The Company’s assets and (liabilities) measured at fair value are as follows:
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June 30, 2017
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December 31, 2016
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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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$
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189,606
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189,606
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—
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198,011
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198,011
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—
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Derivative instruments (1)(2)
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$
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51,086
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—
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51,086
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49,019
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—
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49,019
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_________________________
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(1)
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As of December 31, 2016, the Company had an outstanding zero-strike call option on 704,908 shares of Liberty Broadband Series C common stock which expired in March 2017. The Company prepaid a premium of $47.9 million in December 2016. Liberty Broadband exercised its option to settle the contract in cash in March 2017 for cash proceeds of $50.0 million. The Company accounted for the zero-strike call option as a financial instrument asset due to its settlement provisions.
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(2)
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In April 2017, the Company entered into another zero-strike call option on 600,242 shares of Liberty Broadband Series C common stock. The Company prepaid a premium of $50.0 million in April 2017. Upon expiration in June 2017, the $51.9 million of cash proceeds the Company received on the call option was used, in part, to prepay a premium of $51.6 million on a new zero-strike call option on 600,242 shares of Liberty Broadband Series C common stock. The new zero-strike call option will expire in August 2017. Liberty Broadband has the option to settle in cash or shares of Liberty Broadband Series C common stock upon expiration of the contract. The Company accounted for the zero-strike call option as a financial instrument asset due to its settlement provisions.
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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 Series C Liberty Broadband common stock and the strike prices associated with the call options) were as follows:
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Volatility
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20.2%
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Interest rate
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1.3%
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Dividend yield
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0.0%
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Other Financial Instruments
Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued 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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Six months ended
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June 30,
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June 30,
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2017
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2016
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2017
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2016
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(amounts in thousands)
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Time Warner Cable investment (1)
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$
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—
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47,985
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—
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92,990
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Derivative instruments (2) (3)
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1,370
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—
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2,351
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—
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$
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1,370
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47,985
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2,351
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92,990
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(1)
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As discussed in note 4, Time Warner Cable merged with Charter on May 18, 2016. Therefore the Company no longer has an investment in Time Warner Cable as of May 18, 2016, and the unrealized gain (loss) related to our investment in Time Warner Cable is recorded through this date. In connection with the merger, the Company exchanged, in a tax-free transaction, its shares of Time Warner Cable for shares of Charter Class A common stock.
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(2)
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As of December 31, 2016, the Company had an outstanding zero-strike call option on 704,908 shares of Liberty Broadband Series C common stock which expired in March 2017. Liberty Broadband exercised its option to settle the contract in cash in March 2017.
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(3)
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In April 2017, the Company entered into another zero-strike call option on 600,242 shares of Liberty Broadband Series C common stock. The Company prepaid a premium of $50.0 million in April 2017. Upon expiration in June 2017, the call option was rolled into a new zero-strike call option on 600,242 shares of Liberty Broadband Series C common stock. The Company recognized a realized and unrealized gain on the option as of June 30, 2017.
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