FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

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



	December 31, 2018								December 31, 2017
(In millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Investments
Nonqualified Plan:
Equity securities^(a)	$	40.4	$	40.4	$	—	$	—	$	63.7	$	63.7	$	—	$	—
Money market fund	1.6		—		1.6		—		2.4		—		2.4		—
Stable value fund^(b)	0.5		—		—		—		0.6		—		—		—
Derivative financial instruments
Synthetic bonds - call option premium	9.2		—		9.2		—		62.2		—		62.2		—
Foreign exchange contracts	104.8		—		104.8		—		111.0		—		111.0		—
Asset held for sale	9.6		—		—		9.6		50.2		—		—		50.2
Total assets	$	166.1	$	40.4	$	115.6	$	9.6	$	290.1	$	63.7	$	175.6	$	50.2
Liabilities
Redeemable financial liability	$	408.5	$	—	$	—	$	408.5	$	312.0	$	—	$	—	$	312.0
Derivative financial instruments
Synthetic bonds - embedded derivatives	9.2		—		9.2		—		62.2		—		62.2		—
Foreign exchange contracts	174.1		—		174.1		—		74.9		—		74.9		—
Liabilities held for sale	16.2		—		—		16.2		13.7		—		—		13.7
Total liabilities	$	608.0	$	—	$	183.3	$	424.7	$	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 equity 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.

Assets and liabilities held for sale - The fair value of our assets and liabilities held for sale was determined using a market approach that took into consideration the expected sales price.

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 twelve months ended December 31, 2018 and 2017, we revalued the liability to reflect current expectations about the obligation, which resulted in the recognition of a loss of $322.3 million and $293.7 million, respectively.

A decrease of one percentage point in the discount rate would have increased the liability by $5.4 million as of December 31, 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:



	Year Ended December 31,
(In millions)	2018			2017
Balance at beginning of period	$	312.0		$	174.8
Less: Gains (losses) recognized in net interest expense	(322.3		)	(293.7		)
Less: Settlements	225.8			156.5
Balance at end of period	$	408.5		$	312.0

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 December 31, 2018, the fair value of our redeemable noncontrolling interest was $38.5 million. Refer to Note 2 to these consolidated financial statements 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.

Refer to Note 21 to these consolidated financial statements for additional disclosure related to derivative financial instruments.

Nonrecurring Fair Value Measurements

Fair value of long-lived, non-financial assets - Long-lived, non-financial assets are measured at fair value on a non-recurring basis for the purposes of calculating impairment, when the recoverable amount of the assets has been determined to be less than the book value of the assets. The fair value measurements of our long-lived, non-financial assets measured by estimating the amount and timing of net future cash flows, which are Level 3 unobservable inputs, and discounting them using a risk-adjusted rate of interest. Significant changes in actual or estimated cash flows may result in changes to the fair value of long-lived non-financial assets. Refer to Note 17 for additional disclosure related to these asset impairments.

Other fair value disclosures

Fair value of debt - The fair value of our Synthetic Bonds, Senior Notes and private placement notes are as follows:



	December 31, 2018				December 31, 2017
(In millions)	Carrying Amount ^(a)		Fair Value ^(b)		Carrying Amount ^(a)		Fair Value ^(b)
Synthetic bonds due 2021	$	490.9	$	532.4	$	502.4	$	647.4
3.45% Senior Notes due 2022	500.0		489.7		500.0		497.7
5.00% Notes due 2020	229.0		244.0		239.9		265.2
3.40% Notes due 2022	171.8		186.9		179.9		199.4
3.15% Notes due 2023	148.9		161.3		155.9		167.6
3.15% Notes due 2023	143.1		153.3		149.9		161.4
4.00% Notes due 2027	85.9		95.8		89.9		99.9
4.00% Notes due 2032	114.5		120.2		119.9		142.9
3.75% Notes due 2033	114.5		126.1		119.9		126.7


(a)	Carrying amounts include unamortized debt discounts and premiums and unamortized debt issuance costs of $11.4 million and $13.8 million as of 2018 and 2017, respectively.


(b)	Fair values are based on Level 2 quoted market rates.

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.