Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to value our financial assets and liabilities, and during the year ended December 31, 2015, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of December 31, 2015 and 2014 (in thousands):



	Balance as of December 31, 2015		Fair Value Measurements as of December 31, 2015
	Balance as of December 31, 2015		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	29,782	$	—	$	29,782	$	—
Total Assets	$	29,782	$	—	$	29,782	$	—
Liabilities:
Contingent consideration liabilities	$	4,584	$	—	$	—	$	4,584
Deferred compensation liabilities	30,336		—		30,336		—
Interest rate swaps	1,347		—		1,347		—
Total Liabilities	$	36,267	$	—	$	31,683	$	4,584



	Balance as of December 31, 2014		Fair Value Measurements as of December 31, 2014
	Balance as of December 31, 2014		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	28,242	$	—	$	28,242	$	—
Total Assets	$	28,242	$	—	$	28,242	$	—
Liabilities:
Contingent consideration liabilities	$	7,295	$	—	$	—	$	7,295
Deferred compensation liabilities	27,580		—		27,580		—
Interest rate swaps	5,218		—		5,218		—
Total Liabilities	$	40,093	$	—	$	32,798	$	7,295

The cash surrender value of life insurance and deferred compensation liabilities are included in Other Assets and Other Noncurrent Liabilities, respectively, on our Consolidated Balance Sheets. The current portion of contingent consideration liabilities is included in Other Current Liabilities and the noncurrent portion is included in Other Noncurrent Liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps and foreign currency forward contracts is presented in Note 5, "Derivative Instruments and Hedging Activities."

Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades. We value our derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.

Our contingent consideration liabilities are related to our business acquisitions as further described in Note 8, "Business Combinations." Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market. These unobservable inputs include internally-developed assumptions of the probabilities of achieving specified targets, which are used to determine the resulting cash flows and the applicable discount rate. Our Level 3 fair value measurements are established and updated quarterly by our corporate accounting department using current information about these key assumptions, with the input and oversight of our operational and executive management teams. We evaluate the performance of the business during the period compared to our previous expectations, along with any changes to our future projections, and update the estimated cash flows accordingly. In addition, we consider changes to our cost of capital and changes to the probability of achieving the earnout payment targets when updating our discount rate on a quarterly basis.

The significant unobservable inputs used in the fair value measurements of our Level 3 contingent consideration liabilities were as follows:



	December 31,
	2015		2014
Unobservable Input	(Weighted Average)
Probability of achieving payout targets	76.2	%	79.1	%
Discount rate	7.5	%	7.5	%

A decrease in the assessed probabilities of achieving the targets or an increase in the discount rate, in isolation, would result in a lower fair value measurement. Changes in the values of the liabilities are recorded in Change in Fair Value of Contingent Consideration Liabilities within Other Expense (Income) on our Consolidated Statements of Income.

Changes in the fair value of our contingent consideration obligations are as follows (in thousands):



Balance as of January 1, 2014	$	55,653
Contingent consideration liabilities recorded for business acquisitions	5,854
Payments	(52,363		)
Decrease in fair value included in earnings	(1,851		)
Exchange rate effects	2
Balance as of December 31, 2014	$	7,295
Contingent consideration liabilities recorded for business acquisitions	—
Payments	(2,815		)
Increase in fair value included in earnings	454
Exchange rate effects	(350		)
Balance as of December 31, 2015	$	4,584

The purchase price for our 2011 acquisition of Euro Car Parts Holdings Limited ("ECP") included contingent payments depending on the achievement of certain annual performance targets. The performance target for each of the measurement periods was exceeded, and therefore, we settled the liabilities related to the 2012 and 2013 performance periods for the maximum amounts of £25 million and £30 million, respectively. During 2014, we settled the liability for the 2013 performance period through a cash payment of $44.8 million (£26.9 million) and the issuance of notes for $5.1 million (£3.1 million). The cash payments made for the settlement of these contingent consideration liabilities are included within Payments of Other Obligations and Other Cash Outflows in the Cash Flows from Financing Activities and Cash Flows from Operating Activities sections, respectively, of our Consolidated Statements of Cash Flows.

Of the amounts included in earnings for the twelve months ended December 31, 2015, $0.3 million of losses were related to contingent consideration obligations outstanding as of December 31, 2015. Of the amounts included in earnings for the twelve months ended December 31, 2014, $0.2 million of losses were related to contingent consideration obligations outstanding as of December 31, 2015.

The changes in the fair value of contingent consideration obligations included in earnings during 2015 and 2014 reflect the quarterly reassessment of each obligation's fair value, including an analysis of the significant inputs used in the valuation, as well as the accretion of the present value discount.

Financial Assets and Liabilities Not Measured at Fair Value

Our debt is reflected on the Consolidated Balance Sheets at cost. Based on market conditions as of December 31, 2015 and 2014, the fair value of our credit agreement borrowings reasonably approximated the carrying value of $891.1 million and $1.1 billion, respectively. In addition, based on market conditions, the fair value of the outstanding borrowings under the receivables facility reasonably approximated the carrying value of $63.0 million and $94.9 million at December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, the fair value of our senior notes was approximately $567 million and $569 million, respectively, compared to a carrying value of $600 million.

The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by calculating the upfront cash payment a market participant would require at December 31, 2015 to assume these obligations. The fair value of our senior notes is classified as Level 1 within the fair value hierarchy since it is determined based upon observable market inputs including quoted market prices in an active market.