16.	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:

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

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.

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.

We utilize a third-party to value our interest rate derivatives. The interest rate derivatives are used to hedge the risk of variability from interest payments on our borrowings (see Note 11 — Derivatives and Hedging Activity). A majority of the inputs used in determining the fair value of the derivatives is derived mainly from Level 2 observations which include counterparty quotations in over-the-counter markets. However, the credit valuation adjustments associated with the derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. We determined that these adjustments are not significant to the overall valuation of our derivatives. As a result, our interest rate derivatives are classified in Level 2 in the fair value hierarchy.

In certain instances our acquisitions provide for deferred contingent acquisition payments. These deferred payments are recorded at fair value at the time of acquisition and are included in other current and/or non-current liabilities on our consolidated balance sheets. We estimate the fair value of our deferred contingent acquisition 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.

The significant unobservable inputs used in the fair value measurements of our deferred contingent acquisition liabilities are our measures of the future profitability and related cash flows and discount rates. The fair value of the deferred contingent acquisition liabilities is reassessed on a quarterly basis based on assumptions provided to us by segment and business area leaders together with our corporate development and finance departments. 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 costs of $2.2 million and $1.3 million, respectively, in other operating costs (benefit) for a net increase in the liability, reflecting changes in the fair value estimate of the deferred contingent acquisition liability (see Note 3 – Acquisitions). The following table summarizes the changes in deferred contingent acquisition liabilities (in thousands):

	For the year ended
	December 31,
	2017			2016
Beginning Balance	$	1,723		$	8,782
Acquisitions		-			1,668
Accretion of acquisition-related contingent consideration		264			771
Remeasurement of acquisition-related contingent consideration		2,213			1,330
Payments		(330	)		(828	)
Reclassification to definitive consideration liability		-			(10,000	)
Ending Balance	$	3,870		$	1,723

At December 31, 2017, the carrying value of our bank debt approximated fair value as it bears interest at variable rates, and we believe our credit risk is consistent with when the debt originated. We consider the recorded value of our other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at December 31, 2017 based upon the short-term nature of the assets and liabilities.

Our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and December 31, 2016 (in thousands):

	Quoted Prices in
	Active Markets for		Significant Other			Significant
	Identical Assets		Observable Inputs			Unobservable Inputs
	(Level 1)		(Level 2)			(Level 3)		Total
At December 31, 2017
Interest rate derivatives, net	$	-	$	(213	)	$	-	$	(213	)
Deferred contingent acquisition liabilities	$	-	$	-		$	3,870	$	3,870
At December 31, 2016
Interest rate derivatives, net	$	-	$	64		$	-	$	64
Deferred contingent acquisition liabilities	$	-	$	-		$	1,723	$	1,723