Fair Value Measurements

9 Months Ended

Sep. 30, 2019

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 17 to the Consolidated Condensed Financial Statements for additional information on the goodwill and other intangible impairment during the second quarter of 2018.

The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018 are as follows:



					Fair Value
Millions of dollars	Total Cost Basis				Level 1				Level 2					Total
Measured at fair value on a recurring basis:	2019		2018		2019		2018		2019		2018			2019		2018
Short-term investments⁽¹⁾	$	620	$	578	$	1	$	5	$	619	$	573		$	620	$	578
Net derivative contracts	—		—		—		—		104		(67		)	104		(67		)
Available for sale investments	—		7		—		12		—		—			—		12

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

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
Assets:
Goodwill ⁽²⁾	$	315
Indefinite-lived intangible assets ⁽³⁾	384
Definite-lived intangible assets ⁽⁴⁾	—
Total level 3 assets	$	699

⁽²⁾ 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 during the second quarter of 2018.

⁽³⁾ 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 during the second quarter of 2018.

⁽⁴⁾ 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 during the second quarter of 2018.

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 of 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 of 2018.

See Note 17 to the Consolidated Condensed Financial Statements for additional information.

*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas

South Africa Business Disposal

During the second quarter of 2019, we entered into an agreement to sell our South Africa business. At the time of the agreement we classified this disposal group as held for sale and recorded it at fair value because it was lower than the carrying amount. Fair value was estimated based on the cash purchase price (Level 2 input) and we recorded an impairment charge of $35 million for the write-down of the assets to the fair value of $5 million. During the third quarter of 2019, we completed the sale of our South Africa business and adjusted the loss on disposal based on the carrying amount at the closing date. The adjustment was not material to the Consolidated Condensed Financial Statements

See Note 16 to the Consolidated Condensed Financial Statements for additional information.

Naples Manufacturing Plant Restructuring Action

During the third quarter of 2019, we entered into a preliminary purchase agreement with a third-party purchaser for the reconversion of our Naples, Italy manufacturing plant. We recorded an impairment charge of $25 million for the write-down of certain assets to their fair value of $0. Fair value was based on a feasibility study considering future use internally and marketability externally (Level 2 input). These assets were fully impaired because they were determined to have no alternative use or salvage value and insufficient cash flows to support recoverability of the carrying amount.

See Note 13 to the Consolidated Condensed Financial Statements for additional information.

Other Fair Value Measurements

The fair value of long-term debt (including current maturities) was $4.97 billion and $4.17 billion at September 30, 2019 and December 31, 2018, respectively, and was estimated using 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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