FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2019

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Accounting guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

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

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain assets and liabilities within the fair value hierarchy. There were no transfers of assets or liabilities between the fair value measurement levels for the years ended December 31, 2019 or 2018.

We estimate the fair value of acquisition-related contingent consideration arrangements using a Monte Carlo simulation model, an income approach or a discounted cash flow technique, as appropriate. The fair value of the contingent consideration arrangements is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The fair value of the contingent consideration is reassessed quarterly based on assumptions used in our latest projections and input provided by practice leaders and management. Any change in the fair value estimate is recorded in our consolidated statement of operations for that period. The current portion of contingent consideration is included in accrued liabilities while the long-term portion is included in other long-term obligations and deferred credits, both of which are in our consolidated balance sheets. The use of

different estimates and assumptions could increase or decrease the estimated fair value of our contingent consideration liability, which would result in different impacts to our consolidated balance sheets and consolidated statement of operations. These fair value measurements are based on significant inputs not observable in the market, and thus represent Level 3 inputs. Our recurring Level 3 fair value liability, contingent consideration, including the current portion, was $27.2 million as of December 31, 2019 and $60.7 million as of December 31, 2018.

The following tables present the inputs for the models used to value our acquisition-related contingent consideration:



($ in millions)	December 31, 2019
Valuation Inputs	Discounted Cash Flow Technique⁽¹⁾
Fair value	$	27.2
Discount rate	3.70% - 7.46%
Payment cap	$	28.8
Expected payment period remaining (in years)	0-3
Management projections of the payout criteria	EBITDA/Volumes


(1)	Includes acquisition-related contingent consideration that was estimated using the Monte Carlo simulation model and income approach in 2018. The change from the Monte Carlo simulation model and income approach to discounted cash flow technique was due to the proximity to the measurement period end, which resulted in increased certainty in achieving the maximum payout.



($ in millions)	December 31, 2018
Valuation Inputs	Monte Carlo Simulation		Income Approach		Discounted Cash Flow Technique
Fair value	$	33.2	$	26.5	$	1.0
Discount rate	10.75% - 12.25%		3.70% - 5.00%		6.03% - 15.75%
Payment cap	$	37.3	$	27.3	$	1.1
Expected payment period remaining (in years)	1-3		1		1-4
Management projections of the payout criteria	EBITDA/Volumes		Permitted reserves/Volumes		Volumes

A reconciliation of the changes in Level 3 fair value measurements is as follows:



($ in millions)	Contingent Consideration
Balance at December 31, 2017	$	61.8
2018 acquisitions	1.1
Payments	(2.2		)
Balance at December 31, 2018	60.7
Increase in contingent consideration valuation	2.8
Payments	(36.3		)
Balance at December 31, 2019	$	27.2

Other Financial Instruments

The fair value of our 2024 Notes, estimated based on broker/dealer quoted market prices, was $627.0 million as of December 31, 2019 and $552.0 million as of December 31, 2018. The carrying value of the outstanding amount under our Revolving Facility in 2019 approximated fair value. The carrying value of our operating and finance lease assets and liabilities in 2019 and 2018 approximated fair value.

- 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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