FAIR VALUE

We utilize fair value measures for both financial and non-financial assets and liabilities.

Items measured at fair value on a recurring basis

Fair value measurements are established using a three level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following categories:


•	Level 1: Quoted prices for identical assets or liabilities in active markets.

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Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Short-term investments in this category are valued using discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. Derivative assets and liabilities in this category are valued using models that consider various assumptions and information from market-corroborated sources. The models used are primarily industry-standard models that consider items such as quoted prices, market interest rate curves applicable to the instruments being valued as of the end of each period, discounted cash flows, volatility factors, current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.


•	Level 3: Unobservable inputs that are not corroborated by market data.

The areas in which we utilize fair value measures of financial assets and liabilities are presented in the table below.



	As of June 30, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Bank time deposits with original maturities of three months or less	$	—	$	269.9	$	—	$	269.9
Derivative assets (Note 14)	—		1.0		—		1.0
Diversified investments associated with the Executive Stock Unit Program (ESUP) ¹	35.4		—		—		35.4
Total assets	$	35.4	$	270.9	$	—	$	306.3
Liabilities:
Derivative liabilities ¹ (Note 14)	$	—	$	4.2	$	—	$	4.2
Liabilities associated with the ESUP ¹	35.6		—		—		35.6
Total liabilities	$	35.6	$	4.2	$	—	$	39.8



	As of December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Bank time deposits with original maturities of three months or less	$	—	$	236.4	$	—	$	236.4
Derivative assets ¹ (Note 14)	—		3.9		—		3.9
Diversified investments associated with the ESUP ¹	34.0		—		—		34.0
Total assets	$	34.0	$	240.3	$	—	$	274.3
Liabilities:
Derivative liabilities ¹ (Note 14)	$	—	$	1.9	$	—	$	1.9
Liabilities associated with the ESUP ¹	34.4		—		—		34.4
Total liabilities	$	34.4	$	1.9	$	—	$	36.3

¹Includes both current and long-term amounts.

There were no transfers between Level 1 and Level 2 for any of the periods presented.

The fair value for fixed rate debt (Level 2) was not materially different from its June 30, 2018 and December 31, 2017 $1,250.0 carrying value.

Items measured at fair value on a non-recurring basis

The primary areas in which we use fair value measurements of non-financial assets and liabilities are allocating purchase price to the assets and liabilities of acquired companies as discussed in Note 10, and evaluating long-term assets (including goodwill) for potential impairment. Determining fair values for these items requires significant judgment and includes a variety of methods and models that utilize significant Level 3 inputs.

Long lived assets, acquisitions and the second step of a goodwill impairment test utilize the following methodologies in determining fair value: (i) Buildings and machinery are valued at an estimated replacement cost for an asset of comparable age and condition. Market pricing of comparable assets is used to estimate replacement cost where available. (ii) The most common identified intangible assets are customer relationships and tradenames. Customer relationships are valued using an excess earnings method, using various inputs such as the estimated customer attrition rate, future earnings forecast, the amount of contributory asset charges, and a discount rate. Tradenames are valued using a relief from royalty method, which is based upon comparable market royalty rates for tradenames of similar value. (iii) Inventory is valued at current replacement cost for raw materials, with a step-up for work in process and finished goods items that reflects the amount of ultimate profit earned as of the valuation date. (iv) Other working capital items are generally recorded at face value, unless there are known conditions that would impact the ultimate settlement amount of the particular item.

Goodwill Impairment Reviews

We test goodwill for impairment at the reporting unit level (the business groups that are one level below the operating segments) when triggering events occur, or at least annually. We perform our annual goodwill impairment review in the second quarter. The 2018 and 2017 goodwill impairment reviews indicated no goodwill impairments.

For the 2018 testing, we elected to test goodwill for all reporting units for impairment using a quantitative approach. The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the table below:



Fair Value over Carrying Value divided by Carrying Value	June 30, 2018 Goodwill Value		10-year Compound Annual Growth Rate Range for Sales	Terminal Values Long-term Growth Rate for Debt-Free Cash Flow		Discount Rate Ranges
Less than 100% ¹	$	181.3	4.7% - 5.2%	3	%	9.0% - 9.5%
101% - 300%	504.6		1.8% - 5.0%	3	%	8.5% - 10.0%
301% - 600%	153.1		5.7% - 12.4%	3	%	9.0% - 10.0%
	$	839.0	1.8% - 12.4%	3	%	8.5% - 10.0%

¹All reporting units in this category exceeded 90%, except for the Hydraulic Cylinders reporting unit (acquired in the first quarter of 2018), to which carrying value approximates fair value.