Fair Value Measurements

12 Months Ended

Dec. 31, 2018

FAIR VALUE MEASUREMENTS

Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. Assets and liabilities measured at fair value are based on a market valuation approach using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. As a basis for considering such assumptions, a three-tiered fair value hierarchy is established, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets that are observable, either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value during the reporting period. See Note 5 to the Consolidated Financial Statements for additional information on the goodwill and other intangibles impairment during 2018.

Assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017 are as follows:



	Total Cost Basis				Quoted Prices In Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)						Total Fair Value
Millions of dollars	2018		2017		2018		2017		2018			2017			2018			2017
Short-term investments ⁽¹⁾	$	511	$	455	$	5	$	2	$	506		$	453		$	511		$	455
Net derivative contracts	—		—		—		—		(67		)	(66		)	(67		)	(66		)
Available for sale investments	7		6		12		22		—			—			12			22
Held-to-maturity investments⁽²⁾	—		60		—		—		—			60			—			60

⁽¹⁾ Short-term investments are primarily comprised of money market funds and highly liquid, low risk investments less than 90 days.

⁽²⁾ Held-to-maturity investments are primarily comprised of certificate of deposits with an approximate maturity term of less than six months.

The following table summarizes the valuation of our assets measured at fair value on a non-recurring basis as of June 30, 2018.



	Fair Value
Millions of dollars	Level 3
Measured at fair value on a non-recurring basis:	2018		2017
Assets:
Goodwill ⁽³⁾	$	315	$	—
Indefinite-lived intangible assets ⁽⁴⁾	384		—
Definite-lived intangible assets ⁽⁵⁾	—		—
Total level 3 assets	$	699	$	—

⁽³⁾Goodwill with a carrying amount of $894 million was written down to a fair value of $315 million resulting in a goodwill impairment charge of $579 million.

⁽⁴⁾Indefinite-lived intangible assets with a carrying amount of approximately $492 million were written down to a fair value of $384 million resulting in an impairment charge of $108 million.

⁽⁵⁾A definite-lived intangible asset with a carrying amount of approximately $60 million was written down to a fair value of $0 million resulting in an impairment charge of $60 million.

Goodwill

We have four reporting units for which we assess for impairment. We use a discounted cash flow analysis to determine fair value and consistent projected financial information in our analysis of goodwill and intangible assets. The discounted cash flow analysis for the quantitative impairment assessment for the EMEA reporting unit during the second quarter of 2018 utilized a discount rate of 12%. Based on the quantitative assessment performed, the carrying value of the EMEA reporting unit exceeded its fair value resulting in a goodwill impairment charge of $579 million during the second quarter and for the twelve-months ended December 31, 2018.

Other Intangible Assets

The relief-from-royalty method for the quantitative impairment assessment for other intangible assets in the EMEA reporting unit during the second quarter of 2018 utilized discount rates ranging from 11.5% - 16% and royalty rates ranging from 1.5% - 3.5%. Based on the quantitative impairment assessment performed, the carrying value of certain other intangible assets, primarily the Indesit and Hotpoint* brands, exceeded their fair value, resulting in an impairment charge of $168 million during the second quarter and for the twelve-months ended December 31, 2018.

See Note 5 to the Consolidated Financial Statements for additional information.

Other Fair Value Measurements

The fair value of long-term debt (including current maturities) was $4.17 billion and $4.95 billion at December 31, 2018 and 2017, respectively, and was estimated using a discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements (Level 2 input).

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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