Financial Instruments

9 Months Ended

Sep. 30, 2020

The following table presents the carrying amounts and estimated fair values of our financial instruments by hierarchy level as of September 30, 2020 and December 31, 2019:


	September 30, 2020
			Hierarchy Level (Fair Value)
	Carrying Amount		Level 1		Level 2		Level 3
Liabilities
Acquisition-related contingent consideration, including current portion (1)(2)	$	18,545	$	—	$	—	$	18,545
2023 Convertible Notes (3)	283,454		—		394,079		—
Total	$	301,999	$	—	$	394,079	$	18,545


	December 31, 2019
			Hierarchy Level (Fair Value)
	Carrying Amount		Level 1		Level 2		Level 3
Liabilities
Acquisition-related contingent consideration, including current portion (1)	$	14,826	$	—	$	—	$	14,826
2023 Convertible Notes (3)	275,609		—		398,016		—
Total	$	290,435	$	—	$	398,016	$	14,826

(1)The short-term portion is included in “Accounts payable, accrued expenses and other” and the long-term portion is included in “Other liabilities” on the Condensed Consolidated Balance Sheets.

(2)During the three months ended September 30, 2020, we acquired a strategy consulting and investment banking business that was assigned to the Corporate Finance segment and recorded an acquisition-related contingent consideration liability.

(3)The carrying values include unamortized deferred debt issue costs and debt discount.

The fair values of financial instruments not included in the tables above are estimated to be equivalent to their carrying values as of September 30, 2020 and December 31, 2019.

We estimate the fair value of our 2023 Convertible Notes based on their last actively traded prices. The fair value of our 2023 Convertible Notes is classified within Level 2 of the fair value hierarchy because it is traded in less active markets.

We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model or a Monte Carlo simulation. These fair value estimates represent Level 3 measurements as they are based on significant inputs not observed in the market and reflect our own assumptions. We have multiple valuation models that use different inputs and assumptions based on the timing of the acquisitions. As a result, the significant unobservable inputs used in these models vary. The acquisition-related contingent consideration subject to the probability-weighted discounted cash flow model was valued using significant unobservable inputs including a discount rate of 13.5% and future cash flows. The acquisition-related contingent consideration liabilities subject to the Monte Carlo simulation were valued using significant unobservable inputs including volatility rates between 31.5% and 35.0% and discount rates between 14.0% and 13.0%, which reflect the weighted average of our cost of debt and adjusted cost of equity of the acquired companies, and future cash flows. Significant increases (or decreases) in these unobservable inputs in isolation would result in significantly lower (or higher) fair values. We reassess the fair value of our acquisition-related contingent consideration at each reporting period based on additional information as it becomes available.

The change in our liability for acquisition-related contingent consideration for our Level 3 financial instruments is as follows:


	Liability for Acquisition-Related Contingent Consideration
Balance at December 31, 2019	$	14,826

Accretion expense (1)	506

Foreign currency translation adjustment (2)	(148)
Balance at March 31, 2020	$	15,184
Accretion expense (1)	614
Payments	(4,692)
Foreign currency translation adjustment (2)	88
Balance at June 30, 2020	$	11,194
Additions (3)	3,460
Accretion expense (1)	3,532


Foreign currency translation adjustment (2)	359
Balance at September 30, 2020	$	18,545


	Liability for Acquisition-Related Contingent Consideration
Balance at December 31, 2018	$	3,698

Accretion expense (1)	93


Balance at March 31, 2019	$	3,791
Accretion expense (1)	93
Payments	(1,000)

Balance at June 30, 2019	$	2,884
Additions (3)	14,004
Accretion expense (1)	531


Foreign currency translation adjustment (2)	(333)
Balance at September 30, 2019	$	17,086

(1)Accretion expense is included in "Selling, general and administrative expenses" on the Condensed Consolidated Statements of Comprehensive Income.

(2)Foreign currency translation adjustments are included in "Other comprehensive income (loss), net of tax" on the Condensed Consolidated Statements of Comprehensive Income.

(3)During the three months ended September 30, 2020 and 2019, we acquired businesses that were assigned to the Corporate Finance segment.

- 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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