5. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other current liabilities and short-term debt approximate their fair value because of the short-term maturity of these instruments.

The Company uses derivative financial instruments, “derivatives”, as part of its debt management to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial policy. All derivatives are recognized in the consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates.

The Company’s derivatives are all classified as Level 2 of the fair value hierarchy and there were no transfers between the levels during this or comparable periods (for further information about the hierarchy levels, see the Company’s Annual Report on Form 10-K).

The tables below present information about the Company’s derivative financial assets and liabilities measured at fair value on a recurring basis for the continuing operations. The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below, in the Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017, have been presented on a gross basis. According to the close-out netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company chose not to offset are presented below.

	September 30, 2018
				Fair Value Measurements
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location
Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	1,136.0	¹⁾	$	2.0	²⁾	$	3.8	³⁾	Other current assets/ Other current liabilities
Total derivatives not designated as hedging instruments	$	1,136.0		$	2.0		$	3.8

¹⁾	Net nominal amount after deducting for offsetting swaps under ISDA agreements is $1,136.0 million.

²⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $2.0 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $3.8 million.

	December 31, 2017
				Fair Value Measurements
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location
Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	468.2	¹⁾	$	2.4	²⁾	$	0.3	³⁾	Other current assets/ Other current liabilities
Total derivatives not designated as hedging instruments	$	468.2		$	2.4		$	0.3

¹⁾	Net nominal amount after deducting for offsetting swaps under ISDA agreements is $468.2 million.

²⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $2.4 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $0.3 million.

Derivatives designated as hedging instruments

There were no derivatives designated as hedging instruments as of September 30, 2018 and December 31, 2017 related to the continuing operations.

Derivatives not designated as hedging instruments

Derivatives not designated as hedging instruments relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Income. The derivatives not designated as hedging instruments outstanding at September 30, 2018 and December 31, 2017 related to the continuing operations were foreign exchange swaps.

For the three months ended September 30, 2018 and September 30, 2017, the gains and losses recognized in other non-operating items, net were a gain of $1.0 million and a loss of $0.9 million, respectively, for derivative instruments not designated as hedging instruments. For the nine months ended September 30, 2018 and September 30, 2017, the gains and losses recognized in other non-operating items, net were a loss of $4.3 million and a loss of $0.5 million, respectively.

For the three and nine months ended September 30, 2018 and September 30, 2017, the gains and losses recognized as interest expense were immaterial.

Fair Value of Debt

The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices, estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The Company has determined that each of these fair value measurements of debt reside within Level 2 of the fair value hierarchy.

On June 18, 2018, Autoliv announced that it priced a 5-year bond offering of EUR 500 million in the Eurobond market (the “Notes”). The Notes were issued on June 26, 2018, at an issue price of 99.527%, and carry a coupon of 0.75% (paid annually in arrears), which implies a per annum yield of 0.847%.

The fair value and carrying value of debt for the continuing operations is summarized in the table below (dollars in millions).

	September 30,		September 30,		December 31,		December 31,
	2018		2018		2017		2017
	Carrying		Fair		Carrying		Fair
	value¹⁾		value		value¹⁾		value
Long-term debt
U.S. Private placement	$	1,101.3	$	1,134.9	$	1,310.5	$	1,379.9
Eurobond		576.1		579.3		—		—
Other long-term debt		0.1		0.1		0.2		0.2
Total	$	1,677.5	$	1,714.3	$	1,310.7	$	1,380.1

Short-term debt
Commercial paper	$	349.9	$	349.9	$	—	$	—
Short-term portion of long-term debt		208.1		210.1		0.2		0.2
Overdrafts and other short-term debt		15.0		15.0		19.5		19.5
Total	$	573.0	$	575.0	$	19.7	$	19.7

¹⁾	Debt as reported in balance sheet.

Assets and liabilities measured at fair value on a nonrecurring basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a nonrecurring basis including certain long-lived assets, including equity method investments, goodwill and other intangible assets, typically as it relates to impairment.

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets.