Note 6. Fair Value Measurements

FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:

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Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities

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Level 2 — Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

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Level 3 — Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As circumstances change, we will reassess the level in which the inputs are included in the fair value hierarchy.

For the years ended December 31, 2017 and 2016, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes our assets and liabilities at December 31, 2017 and 2016 that are measured at fair value on a recurring basis subsequent to initial recognition and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (in thousands):

	Level		December 31, 2017			December 31, 2016
Deferred compensation plan assets		1	$	85,589		$	69,912
Corporate and municipal bonds		1	$	51,101		$	44,573
Deferred compensation plan liabilities		1	$	(85,589	)	$	(69,912	)
Interest rate swap		2	$	1,131		$	529
Contingent purchase price liabilities		3	$	(37,574	)	$	(33,709	)

Contingent Purchase Price Liabilities

Contingent purchase price liabilities result from our business acquisitions and are recorded at fair value at the time of acquisition and are recorded in “Contingent purchase price liability — current” and “Contingent purchase price liability — non-current” in the accompanying Consolidated Balance Sheets. We estimate the fair value of our contingent purchase price liabilities using a probability-weighted discounted cash flow model. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

We probability weight risk-adjusted estimates of future performance of acquired businesses, then calculate the contingent purchase price based on the estimates and discount them to present value representing management’s best estimate of fair value. The fair value of the contingent purchase price liabilities are reassessed on a quarterly basis based on assumptions provided by practice group leaders and business unit controllers together with our corporate finance department. Any change in the fair value estimate is recorded in the earnings of that period.

During the years ended December 31, 2017 and 2016 we recorded other income of $1.5 million and $1.3 million, respectively, reflecting a decrease in the fair value of contingent purchase price liabilities related to prior acquisitions. These decreases are included in “Other Income, net” in the accompanying Consolidated Statements of Comprehensive Income. Refer to Note 18, Acquisitions, for further discussion of our acquisitions and contingent purchase price liabilities.

The following table summarizes the change in fair value of our contingent purchase price liabilities identified as Level 3 for the years ended December 31, 2017 and 2016 (pre-tax basis, in thousands):

	Contingent Purchase Price Liabilities
Beginning balance — January 1, 2016	$	(24,817	)
Additions from business acquisitions		(21,088	)
Settlement of contingent purchase price payable		11,202
Change in fair value of contingency		1,342
Change in net present value of contingency		(348	)
Balance — December 31, 2016	$	(33,709	)
Additions from business acquisitions		(19,291	)
Settlement of contingent purchase price payable		13,932
Change in fair value of contingency		2,128
Change in net present value of contingency		(634	)
Balance — December 31, 2017	$	(37,574	)

The carrying amounts of our cash and cash equivalents, accounts, receivable and accounts payable approximate fair value because of the short maturity of these instruments, and the carrying value of bank debt approximates fair value as the interest rate on the bank debt is variable and approximates current market rates. As a result, the fair value measurement of our bank debt is considered to be Level 2.