FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis were as follows:



	September 30, 2018								December 31, 2017
(In millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Investments
Equity securities^(a)	$	46.6	$	46.6	$	—	$	—	$	63.7	$	63.7	$	—	$	—
Money market fund	1.5		—		1.5		—		2.4		—		2.4		—
Stable value fund^(b)	0.5		—		—		—		0.6		—		—		—
Derivative financial instruments
Synthetic bonds - call option premium	66.4		—		66.4		—		62.2		—		62.2		—
Foreign exchange contracts	110.6		—		110.6		—		111.0		—		111.0		—
Asset held for sale	20.9		—		—		20.9		50.2		—		—		50.2
Total assets	$	246.5	$	46.6	$	178.5	$	20.9	$	290.1	$	63.7	$	175.6	$	50.2
Liabilities
Redeemable financial liability	$	401.3	$	—	$	—	$	401.3	$	312.0	$	—	$	—	$	312.0
Derivative financial instruments
Synthetic bonds - embedded derivatives	66.4		—		66.4		—		62.2		—		62.2		—
Foreign exchange contracts	106.9		—		106.9		—		74.9		—		74.9		—
Liabilities held for sale	14.9		—		—		14.9		13.7		—		—		13.7
Total liabilities	$	589.5	$	—	$	173.3	$	416.2	$	462.8	$	—	$	137.1	$	325.7


(a)	Includes fixed income and other investments measured at fair value.


(b)	Certain investments that are measured at fair value using net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

Equity securities - The fair value measurement of our traded securities is based on quoted prices that we have the ability to access in public markets.

Stable value fund and Money market fund - Stable value fund and money market fund are valued at the net asset value of the shares held at the end of the quarter, which is based on the fair value of the underlying investments using information reported by our investment advisor at quarter-end.

Mandatorily redeemable financial liability - In the fourth quarter of 2016, we obtained voting control interests in legal Onshore/Offshore contract entities which own and account for the design, engineering and construction of the Yamal LNG plant. As part of this transaction, we recognized the fair value of the mandatorily redeemable financial liability using a discounted cash flow model. The key assumptions used in applying the income approach are the selected discount rates and the expected dividends to be distributed in the future to the noncontrolling interest holders. Expected dividends to be distributed are based on the noncontrolling interests’ share of the expected profitability of the underlying contract, the selected discount rate and the overall timing of completion of the project.

A mandatorily redeemable financial liability of $312.0 million was recognized as of December 31, 2017 to account for the fair value of the non-controlling interests. During the three and nine months ended September 30, 2018, we revalued the liability to reflect current expectations about the obligation, which resulted in the recognition of a loss of $93.2 million and $213.5 million, respectively.

A decrease of one percentage point in the discount rate would have increased the liability by $7.2 million as of September 30, 2018. The fair value measurement is based upon significant unobservable inputs not observable in the market and is consequently classified as a Level 3 fair value measurement.

Change in the fair value of our Level 3 mandatorily redeemable financial liability is recorded as interest expense on the consolidated statements of income and is presented below:



	Nine Months Ended
	September 30,
(In millions)	2018			2017
Balance at beginning of period	$	312.0		$	174.8
Less: Gains (losses) recognized in net interest expense	(213.5		)	(202.9		)
Less: Settlements	124.2			76.6
Balance at end of period	$	401.3		$	301.1

Redeemable noncontrolling interest - In the first quarter of 2018, we acquired a 51% share in Island Offshore. The noncontrolling interest is recorded as mezzanine equity at fair value. The fair value measurement is based upon significant unobservable inputs not observable in the market and is consequently classified as a Level 3 fair value measurement. As of September 30, 2018, the fair value of our redeemable noncontrolling interest was $39.7 million. See Note 2 to our condensed consolidated financial statements of this Quarterly Report for additional disclosure related to the acquisition.

Derivative financial instruments - We use the income approach as the valuation technique to measure the fair value of foreign currency derivative instruments on a recurring basis. This approach calculates the present value of the future cash flow by measuring the change from the derivative contract rate and the published market indicative currency rate, multiplied by the contract notional values. Credit risk is then incorporated by reducing the derivative’s fair value in asset positions by the result of multiplying the present value of the portfolio by the counterparty’s published credit spread. Portfolios in a liability position are adjusted by the same calculation; however, a spread representing our credit spread is used. Our credit spread, and the credit spread of other counterparties not publicly available, are approximated by using the spread of similar companies in the same industry, of similar size and with the same credit rating.

At the present time, we have no credit-risk-related contingent features in our agreements with the financial institutions that would require us to post collateral for derivative positions in a liability position.

See Note 17 to our condensed consolidated financial statements of this Quarterly Report for additional disclosure related to derivative financial instruments.

Other fair value disclosures

Fair value of debt - The respective carrying value and fair value of our Synthetic bonds and our Senior Notes and private placement notes on a combined basis as of September 30, 2018 was $2,026.2 million and $2,229.2 million, respectively. The respective carrying value and fair value of our Synthetic bonds and our Senior Notes and private placement notes on a combined basis as of December 31, 2017 were $2,043.8 million and $2,308.2 million.

Other fair value disclosures - The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, short-term debt, commercial paper, debt associated with our bank borrowings, credit facilities, convertible bonds, as well as amounts included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair value.

Credit risk - By their nature, financial instruments involve risk, including credit risk, for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses on trade receivables are established based on collectibility assessments. We mitigate credit risk on derivative contracts by executing contracts only with counterparties that consent to a master netting agreement, which permits the net settlement of gross derivative assets against gross derivative liabilities.